Personal income taxes have progressive rates and generate what kind of increases in tax revenues as GDP expands?

Multiple choice question.

Proportionate

More-than-proportionate

Less-than-proportionate

Not enough information to determine

1 answer

The correct answer is More-than-proportionate.

In a progressive tax system, as income (and consequently GDP) increases, higher income earners pay a larger percentage of their income in taxes compared to lower income earners. This means that tax revenues increase at a rate that is greater than the rate of GDP growth, leading to more-than-proportionate increases in tax revenues as GDP expands.