Question

A(n) __________________ tax is defined as the reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status.

A) Excise
B) Income
C) Capital Gains
D) Tax Credit

Answer 1

A tax credit reduces before-tax returns of a tax-favored asset due to its tax-advantaged status, differing from excise, income, or capital gains taxes.

Step-by-step explanation:

A tax credit is defined as the reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status. It is not an excise tax, income tax, or capital gains tax as these are different forms of taxation. A tax credit directly reduces the amount of tax one owes, unlike the aforementioned taxes, which relate to taxation on goods, earnings, or profits. Tax credits are often used to incentivize certain economic activities, such as investing in renewable energy or providing relief to low-income individuals.