Final answer:
Lower tax rates can increase tax revenue by improving tax compliance (option b) and stimulating economic activity. However, the validity and applicability of this argument, encapsulated in the Laffer curve, are limited and not widely accepted among economists.
Step-by-step explanation:
Economist Arthur Laffer is known for the concept of the Laffer curve, which suggests that reducing income tax rates can sometimes lead to an increase in tax revenue. This can occur because lower tax rates may encourage greater compliance with the tax system, reducing the extent of tax evasion.
Furthermore, lower tax rates can stimulate economic activity by influencing consumer and business behavior, leading to a larger tax base. Individuals and companies are more likely to engage in productive economic activities when they get to keep a greater portion of their earnings, which can result in a higher total revenue from taxes even though the tax rate itself is lower.
It is important to note, however, that the argument that tax cuts can increase revenue is considered to have limited applicability and was not widely accepted among economists in relation to the US economy or other economies. The effects of tax cuts on hours worked and economic output are usually relatively small, and most economies are not positioned on the so-called "wrong side" of the Laffer curve, where tax cuts could directly lead to increased tax revenues.