When the marginal tax rate is already high, raising it further creates additional distortions such as reducing work effort and investment, as individuals and businesses may choose to avoid or evade the higher taxes, leading to reduced economic growth and overall welfare.

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In General

Question 38

Multiple Choice

In general,

A) the higher the marginal tax rate already is,the greater are the additional distortions created by raising the marginal tax rate still further.
B) the higher the marginal tax rate already is,the smaller are the additional distortions created by raising the marginal tax rate still further.
C) the higher the average tax rate already is,the smaller are the additional distortions created by raising the average tax rate still further.
D) the higher the average tax rate and the marginal tax rate,the smaller are the additional distortions created by raising the marginal and average tax rates still further.

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