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% of the cost of the items.The credit may not exceed $50 in any year.State Y's 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 that 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 may not have been considered in designing this tax. The tax gap refers to the difference between what taxpayers owe and what they actually pay. If the tax credit is being claimed far higher than expected, it may indicate a loophole or oversight in the design of the credit that allows for excessive claims, leading to a larger tax gap. Therefore, the principle of minimum tax gap may not have been adequately considered.

Two Years Ago, State Y Enacted a New Income Tax