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Tax Credits

March 29, 2021
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WRITTEN BY Brittany Whitley, Jill Barnas

Federal, state and local tax revenue fund a range of public goods and services, including education, healthcare, and infrastructure.

Policies that reduce the amount of taxes owed by a taxpayer (e.g., credits, deductions, exemptions) are expected to decrease government revenue while incentivizing immediate private spending and investment. In contrast to tax deductions and exemptions, which reduce the assessed tax liability, tax credits are directly subtracted from the amount of taxes owed. In many cases, tax credits are targeted to low- and middle-income individuals and households.

They can also be used to incentivize taxpayers to invest in high-need projects, government programs, or philanthropic services.

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