Question

"Tax Credits" Please respond to the following: • Choose at least two types of tax credits allowed, and propose one change to each of the credits that would benefit all taxpayers. Justify your response. • Debate it! The earned income credit is fair and reasonable for all taxpayers. Provide a rationale for your response.

Answer 1

Two types of tax credit allowed:

1. child tax credit: child tax credit is given to dependent qualifying child under the age of 17 to reduce the tax liability of their parents. this credit is mainly intended to help low to middle income workers.this credit is not allowed to high income families.one change which can be proposed  to this credit that would benefit all taxpayers is that government can fix the rate of refundable amount (the reduced tax liability from their income tax for the year ) based on their earned income amount . for example , different tax band can be applied to tax payers based on their income levels .eg :for low income workers , the child tax credit limit should be more than middle income and high income workers as a proportion to their income and for high income workers the limit should be low compared to middle and low income workers.in this way , all level of tax payers could get the tax credit .because even though the income is high , some parents may still suffer for their childrens education  and other expenses and this should be taken into consideration and tax credit should be given to all level of taxpayers .

2.working tax credit : working tax credit is given to low income earning people and the refund is based on their working hours in a week and their age  .to benefit all taxpayers , working tax credit should be given to all taxpayers based on the hours worked, not just to low income workers.beacuse there will be high income workers who work hard for longer than usual hours and they also should get a tax benefit .government can fix tax bands to all level of taxpayers based on proportion to their income and working hours in a way that benefits to all tax payers and make sure that low to middle income workers are getting more credit compared to high income workers.

Earned income credit : the earned income credit is only allowed to low and some middle income families .they can reduce the tax liability to zero , with this credit and if the credit goes below zero, they will get a tax refund .To qualify for this credit , a taxpayer’s earned income and adjusted gross income must be less than certain income limits.it can be argued that this credit is fair and reasonable to all taxpayers because the main aim of giving this credit is to keep families out of poverty line while encouraging everyone to work. it is clear that high income families will not be suffering from proverty whereas low and some middle income families do suffer from poverty and unemployment . so it is reasonable to provide earned income tax credit to only low and some middle income workers as the main intention of giving this credit is to reduce the poverty .high income workers may still get other tax benefits and they do not need earned income tax credit as they are out of poverty line. so, earned income credit is totally fair and reasonable to all level of tax payers as it is given totally based on the eligibility/right to get this credit .