Two years ago, State Y enacted a new income tax credit for college prep materials. The credit is available to individuals and is equal to 40 percent of the cost of the items. The credit may not exceed $50 in any year. The State Y Director of Finance has discovered this year that the amount of credit claimed is far higher than expected. Which principle of good tax policy might not have been considered in designing this tax which caused the original cost estimate to be too low?
A) Equity.
B) Simplicity.
C) Economy in collection.
D) Minimum tax gap.

Question

Quizplus · Accepted Answer

The principle of "Minimum tax gap" might not have been considered, as the unexpectedly high claims suggest that the tax credit may have been too generous or easily exploited, leading to a larger gap between expected and actual tax revenue.

Two Years Ago, State Y Enacted a New Income Tax