Suppose Two Individuals Earn the Same Salary Each Year Over

question 23

Multiple Choice

Suppose two individuals earn the same salary each year over their lifetimes. One individual saves 25 percent of his income each year, while the other saves nothing. Over their lifetimes under a comprehensive income tax,

• A) the discounted present value of taxes paid will be the same for both.
• B) the discounted present value of taxes paid will be greater for the saver.
• C) the discounted present value of taxes paid will be greater for the nonsaver.
• D) the saver will pay no tax on his interest income.

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