To determine how much tax revenue the government would generate by charging a 100% income tax according to the Laffer curve, we need to understand the basic principle behind the Laffer curve.
The Laffer curve is a theoretical representation that shows the relationship between tax rates and tax revenue. It suggests that there is an optimal tax rate that maximizes revenue. At the extremes of 0% and 100% tax rates, the government would generate zero revenue.
Here's the reasoning for a 100% income tax rate:
1. Incentives to Work and Earn: If the government imposes a 100% income tax, it means that individuals would have to hand over all of their earnings to the government. There would be no financial incentive for individuals to work, as they would not benefit from their labor.
2. Labor Supply Response: Since individuals are rational and would not willingly work without compensation, most, if not all, would stop working. This would cause total output and earnings to drop to zero.
3. Revenue Generation: With no one working and earning money, the total taxable income would be zero. Consequently, 100% of zero is still zero. This means the tax revenue collected by the government would be zero.
Based on the above explanation, if the government charges a 100% income tax, it will generate no tax revenue.
Therefore, the correct answer is:
A. $0
