Why don't most tax expenditures provide significant benefits if your federal tax bill is zero?

• A. Because tax expenditures increase government spending directly.
• B. Because tax expenditures automatically result in a tax refund regardless of tax liability.
• C. Because tax expenditures typically reduce taxable income or tax liability, which is already zero.
• D. Because tax expenditures are only available to corporations, not individuals.

Answer: (C)

Verified step by step guidance

1. Understand what a tax expenditure is: it refers to reductions in tax liability through deductions, credits, or exclusions that effectively lower the amount of tax owed.
2. Recognize that tax expenditures reduce taxable income or tax liability, meaning they provide benefits by lowering the amount of tax a person or entity must pay.
3. Consider the scenario where a taxpayer's federal tax bill is already zero, meaning they owe no taxes before applying any tax expenditures.
4. Since tax expenditures reduce tax liability, if the tax liability is already zero, these expenditures cannot reduce it further or provide additional benefits.
5. Therefore, tax expenditures do not provide significant benefits to individuals with zero tax liability because there is no tax owed to reduce.