Question

The government plans to offer a transportation tax credit in which families receive 80% of their expenditures on transportation to and from work or school as a reduction in their tax bill. It is considering two forms of this tax credit, one that is fully refundable and one in which the tax credit is limited to the amount of taxes the family pays. Which form of the tax credit is more progressive? Explain.

Answer 1

In my Opinion, Refundable tax credit will be more progressive because the if someone is eligible for refundable tax credit, It might be more than that of it's tax liability to federal income tax department and if it is so, the remaining amount will come into the pocket of the person. however to the contrary a tax credit limited to the amount of taxes the family pays will only save the tax liability of that family but nothing will come into the pocket of that family and any part of credit left will not be refunded back, IRS will keep the same with itself.

In fact, the tax credit which puts some cash in my pocket after deduction of my taxes will be more progressive as per my perception.

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