In the fall of 2005, the president\'s tax reform commission issued a final repor
ID: 1137469 • Letter: I
Question
In the fall of 2005, the president's tax reform commission issued a final report. The commission called for a general cut in marginal tax rates; lower tax rates on dividends, capital gains, and interest income; and, more importantly, the expensing of investment in capital equipment. These provisions were argued to be pro-growth Which of the following is NOT a reason why you would expect these proposals to be favorable to economic growth? O A. By lowering tax rates on dividends, etc., it will encourage additional savings which will lead to additional investment in the aconomy O B. By allowing firms to reduce taxable income with the expensing of investment, firms wll engage in additional investment C. By creating additional reductor, i taxes, the gove ment will experience increases in budget deficits, assuming there are no cuts to spending, leading to higher interest rates as the government borrows more D. y reducing marginal tax rates, it will raise the reward for working and people will be willing work more hours at any wage rate, thereby increasing the level ofExplanation / Answer
"A"
By lowering the tax rate the saving will increase and it will encourage the people to save more and it will increase the investment. the statement given is wrong. Increased saving will and lower taxes on capital gains and interest income will allow people to save more and demand less. At a lower demand, the economy will slump down and overall economic activity will be affected. The answer is "A".