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Assignment 3: Tax Credits
Finance & Accounting
Pages 8 (2008 words)
Assignment 3: Tax Credits Name: Institution: Course: Professor: Date: The Original Purpose of Tax Credit in the U.S Tax Code and Its Present Relevance to the Taxpayer “Tax credit is a direct reduction in the tax liability of the taxpayer receiving the credit” (Murphy & Higgins, 2011 pg.
Tax credits are neutral and enable the Congress in making certain that specific taxpayers get tax credit as concerns marginal tax rates (Cordes, Ebel, & Gravelle, 2005). This purpose is still relevant for today’s taxpayer because the economy of the country has continued to deteriorate over the years. As such, individual and businesses still need protection from harsh economic times. Fairness of Tax Credits and Their Impacts on Taxpayers According to (Murphy & Higgins, 2011), tax credits provide incentives to taxpayers hence motivating them to actively engage in certain economic activities. Tax credits also ensure the cannon of equity among taxpayers and avail tax-relief for low-income earners. The Congress favors the use of tax credits to deductions since the amount of tax relief is similar for all taxpayers falling in various marginal tax brackets. Tax credits are in most cases nonrefundable and if the total of the credit is more than the tax owed, the taxpayer has no prerogative over the extra credit paid. However, the earned income tax credit and in particular occasions, the child credit are refundable. Many people have criticized tax credits for being unjust. Refundable tax credit is arguably the most unfair form of tax credit. ...
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