Which of the following best explains why high marginal tax rates retard output?
A) High marginal tax rates reduce the incentive to earn, invest, and use resources efficiently.
B) High marginal tax rates will encourage foreign investment.
C) High marginal tax rates will reduce budget deficits and lower interest rates.
D) High marginal tax rates encourage people to substitute more-desired nondeductible goods for less-desired tax-deductible goods.

Question

Quizplus · Accepted Answer

High marginal tax rates reduce the incentive to earn, invest, and use resources efficiently, as individuals or firms face a higher tax burden on additional income earned or investment made. As a result, they may work less, reduce investment or shift investments to other countries with lower tax rates, thus reducing output.

Which of the Following Best Explains Why High Marginal Tax