Final answer:
The correct option is C. A reduction in tax revenues proportionately smaller than the rate cuts.
Cuts in tax rates will result in a reduction in tax revenues proportionately smaller than the rate cuts.
Step-by-step explanation:
Most economists agree that, other things being equal, cuts in tax rates will result in a reduction in tax revenues proportionately smaller than the rate cuts.
When tax rates are cut, households have more disposable income as their taxes decrease. This leads to an increase in consumption, which can stimulate economic growth and lead to higher tax revenues overall. Additionally, lower tax rates can incentivize businesses to invest and create jobs, which can also contribute to higher tax revenues.
However, it's important to note that the extent to which tax cuts lead to higher tax revenues depends on various factors, such as the size of the tax cut, the state of the economy, and the specific tax policies in place. In some cases, tax cuts may not necessarily result in higher tax revenues, but they can still have other positive effects on the economy.