Because corporate income tax laws do not define profit to be the same as economic profit, many economists believe that the corporate income tax ______ investment.
A) encourages
B) discourages
C) does not affect
D) promotes excessive

Question

Quizplus · Accepted Answer

Many economists believe that the corporate income tax discourages investment because it reduces the after-tax return on investment and lowers the incentive for companies to invest in profitable projects. The tax code also allows companies to deduct interest expenses, which make debt financing more attractive than equity financing, further reducing the incentives for investment. Additionally, the tax system can create distortions and inefficiencies in investment decisions by favoring certain types of investments over others based on their tax treatment.

Because Corporate Income Tax Laws Do Not Define Profit to Be