According to supply-side theory, an increase in marginal tax rates will
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A. B. C. D.A
Increasing marginal tax rates reduces the incentive to work since individuals keep a smaller percentage of their earnings. Additionally, increased marginal tax rates divert resources away from productive roles to roles designed to "shelter" capital owners from taxation. The final consequence is that efficiency is reduced since individuals choose deductible (and less desirable) goods over nondeductible goods. Efficiency is compromised because although the non-deductible goods are affordable and preferable to deductible goods, they are not consumed.