Question

Tax costs ______ and cash flows ______ when income is taxed at a preferential rate because of its character.

Answer 1

Tax costs decrease and cash flows increase when income is taxed at a preferential rate because of its character.

Step-by-step explanation:

Tax costs decrease and cash flows increase when income is taxed at a preferential rate because of its character. When income is taxed at a lower rate or given a special tax treatment, such as a tax deduction or credit, the tax liability decreases, resulting in lower tax costs. This, in turn, increases the cash that individuals or businesses have available for spending or investing.