The supporters of a proposal to increase marginal taxes on those earning over $200,000 a year say this change would generate $100 billion in new tax revenues. A supply-side economist would argue that the actual revenue raised will be
A)less than $100 billion because some people will respond by working less.
B)exactly $100 billion because there are no offsetting factors to a tax increase.
C)more than $100 billion, because lower income people will work harder when they perceive the tax system to be fairer.
D)more than $100 billion because interest rates will also be affected.

Question

Quizplus · Accepted Answer

Supply-side economists believe that tax increases can discourage work effort, entrepreneurship, and investment, resulting in a smaller tax base and, ultimately, less tax revenue than predicted by simple static analysis. Therefore, they argue that the actual revenue raised will be less than $100 billion because some people will respond by working less.

The Supporters of a Proposal to Increase Marginal Taxes on Those