Legislation would give credit against personal income tax equal to 50 percent

Legislation would give credit against personal income tax equal to 50 percent of child-care expenses incurred

by a taxpayer (subject to a limit of $750 credit per family).

Analyze the implications of credit on two families of this state: Family #1 (in the 18 percent federal

tax bracket) and Family #2 (in the 35 percent federal tax bracket) each family expends

approximately $1500 per year for child-care. Currently only State income taxes are fully

deductible for federal tax purposes.If the child-care allowance were ena

If the child-care allowance were enacted as a credit and the state tax rate was a flat 4.0

percent how much would state liability for each of the families change?

b. Assuming the child-care allowance is enacted as a deduction (still subject to the same

$750 limit) what is the net after-tax cost of child-care expenses to each of the families?

You should consider both changes in federal and state tax liability (Hint: subtract the

changes in state and federal liability from $1500).

c. From the above computations which approach (credit or deduction) do you suppose the

Child-care coalition in the state would favor? Why? Is this the same approach that the

state comptroller would favor? Why or why not?