What determines tax revenues? A) The income tax rate B) The income of households C) The money supply in the economy D) A and B are both correct

Answer

D)   A and B are both correct

Explanation

Both income tax rate and income from households determines the tax revenue. The total tax revenue is directly proportional to the income from households that is taxable. As household income increases, the tax revenue increases. Regardless of the total income from households, the tax rate determines what portion of the income goes to the tax, hence a higher tax rate will increase tax revenue.