Final answer:
True, reducing a taxpayer's AGI can increase the deductible amount of medical expenses. Arthur Laffer theorized that lower tax rates might increase tax revenue by incentivizing more income generation and reporting.
Step-by-step explanation:
The statement is true: A decrease in a taxpayer's Adjusted Gross Income (AGI) could increase the amount of medical expenses that can be deducted. This is because the Internal Revenue Service (IRS) allows taxpayers to deduct the amount of medical and dental expenses that exceeds a certain percentage of their AGI. Therefore, if the AGI decreases, the same amount of medical expenses will represent a higher percentage of the AGI, making more of these expenses deductible. Regarding the second part of the question referencing Economist Arthur Laffer, he hypothesized that there's a certain point where high tax rates can lead to decreased revenue because they disincentivize earning and reporting income. If tax rates are reduced, it could lead to increased economic activity, more income to tax, and ultimately higher income tax revenue.