Final answer:
When GDP rises during prosperity, tax revenues typically increase due to higher incomes, profits, and spending. This results in more individual income taxes, payroll taxes, and corporate income taxes.
Step-by-step explanation:
As GDP rises during prosperity, tax revenues generally increase. This phenomenon occurs because of the growth in economic activities that lead to higher personal incomes, corporate profits, and consumer spending. As personal incomes rise, more taxes are collected from individual income taxes; as jobs and payrolls increase, payroll taxes go up accordingly; and as companies report higher profits, the amounts collected from corporate income taxes rise as well. An important concept related to this is the Laffer curve, which suggests that at a certain point, lowering tax rates can actually increase tax revenue by stimulating economic growth, improving incentives for work and investment, and reducing tax evasion.