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View Diary: The Real Spending Problem: TAX BREAKS (21 comments)

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  •  OK, I guess this makes sense. (4+ / 0-)
    Recommended by:
    Superpole, lcrp, NoMoreLies, LookingUp

    Tax deductions and tax credits can both reduce an individual’s income tax liability, but they do it in different ways. Tax deductions reduce taxable income; their value thus depends on the taxpayer’s marginal tax rate, which rises with income. Because deductions cannot reduce taxable income below zero, their value is limited to the filer’s tax liability before applying the deduction. In contrast, tax credits directly reduce a person’s tax liability and hence have the same value for all taxpayers with tax liability at least equal to the credit.  In addition, some credits are refundable; they are not limited by the taxpayer’s tax liability.

    http://www.taxpolicycenter.org/...

    I take a few deductions for mortgage and charitable giving and retirement savings, but if they were converted to credits, I guess I could live with that.

    Not sure the Repubs would go along, tho.

    "Michael Moore, who was filming a movie about corporate welfare called 'Capitalism: A Love Story,' sought and received incentives."

    by Bush Bites on Sun Mar 17, 2013 at 06:50:35 AM PDT

    •  In other words. (0+ / 0-)
      Tax credits are subtracted not from taxable income but directly from a person’s tax liability; they thus reduce taxes dollar for dollar. As a result, credits have the same value for everyone who can claim their full value.
      (from same source)

      "Michael Moore, who was filming a movie about corporate welfare called 'Capitalism: A Love Story,' sought and received incentives."

      by Bush Bites on Sun Mar 17, 2013 at 06:55:20 AM PDT

      [ Parent ]

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