What happens when interest income from savings is taxed
A)For the poor people, more will be saved than without the tax to make up for what is lost in taxes.
B)For the rich people, more will be saved than without the tax to make up for what is lost in taxes.
C)For the rich people, less will be saved than without the tax since tax lowers the return on income.
D)For the poor people, less will be saved without tax since tax lowers the cost of investment.

Question

Quizplus · Accepted Answer

The rich people are more likely to have substantial savings and investment income, so the tax would lower the return they receive on their investment income, leading to less potential savings. The poor people, who have less income to save and invest, may still save the same amount or potentially more to make up for what is lost in taxes. Choice A and D are incorrect because the tax will not necessarily lead to more or less savings, respectively, for people based on their income level alone.

What Happens When Interest Income from Savings Is Taxed