Which would a taxpayer in the 35% tax bracket prefer: a $2,000 tax exemption or a $700 tax credit? What if the taxpayer were in the 25% tax bracket?
What will be an ideal response?
For 35% taxpayer: exemption $2,000(0.35) = $700; tax credit = $700 so the taxpayer should
be indifferent between tax credit and exemption. For 25% taxpayer: exemption $2,000(0.25) =
$500; tax credit = $700. Choose tax credit.
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