This equation contains two parts. First, we note that net
taxes (
T
) will be equal to an amount
T
0
if income (
Y
) is zero.
Second, the tax rate (
t
) indicates how much net taxes change as
income changes. Suppose
T
0
is equal to
-
200 and
t
is 1/3. The
resulting tax function is
T
=
-
200 + 1/3
Y
, which is graphed in
Figure 9B.1. Note that when income is zero, the government
collects “negative net taxes,” which simply means that it makes
transfer payments of 200. As income rises, tax collections
increase because every extra dollar of income generates $0.33
in extra revenues for the government