The governor of your state stated in a recent political speech that he has never supported any income tax increases as the tax rates have remained at the same level during his entire term of office. Yet, you believe that you are paying more tax this year than in previous years even though your income has not increased. How can both you and the governor be correct? In other words, is it possible for the government to raise taxes without raising tax rates?

A. Yes, it is possible because there are two components in computing a taxpayer's tax, earned income and the tax rate. However, taxes can only be raised by increasing earned income. Thus, even though the Governor proclaimed that tax rates have remained at the same level, adjustments to earned income, such as the elimination of deductions, result in tax increases which can be as much, or more, as increases in tax rates.

B. Yes, it is possible because there are two components in computing a taxpayer's tax, the tax base and the tax rate. However, taxes can only be raised by increasing the tax base. Thus, even though the Governor proclaimed that tax rates have remained at the same level, adjustments to the tax base, such as the reduction of exemptions, result in tax increases which can be as much, or more, as increases in tax rates.

C. Yes, it is possible because there are two components in computing a taxpayer's tax, the tax base and the tax rate, taxes can be raised by increasing either component. Thus, even though the Governor proclaimed that tax rates have remained at the same level, adjustments to the tax base, such as the elimination of deductions, result in tax increases which can be as much, or more, as increases in tax rates.

D. No, it is not possible because taxes can only be raised by increasing the tax rate. Therefore, the Governor's statement that the tax rates have remained at the same level is incorrect since taxes did increase.