Problem $1-50($LO $1-3,$ LO $1-5)($Algo$)$

Song earns $$116,000$ taxable income as an interior designer and is taxed at an average rate of $20$ percent $($i$.$e$.,$ $$23,200$ of tax$).$ Answer the questions below assuming that Congress increases the income tax rate such that Song's average tax rate increases from $20$ percent to $25$ percent.

Required:

a$.$ What will happen to the government's tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $$87,000$ in taxable income?

b$.$ What is the term that describes this type of reaction to a tax rate increase?

c$.$ What types of taxpayers are likely to respond in this manner?

Complete this question by entering your answers in the tabs below.

Required A

Required $B$

Required C

What will happen to the government's tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $$87,000$ in taxable income?

What will happen to the government's tax revenues?