The Tax Act of 2017 affected business taxes by Part 4
A. raising the tax rates on capital.
B. providing incentives for investment.
C. eliminating the deduction of entertainment expenses.
D. raising corporate tax rates.
The correct answer and explanation is:
The correct answer is: B. providing incentives for investment.
Explanation:
The Tax Cuts and Jobs Act (TCJA) of 2017 was a significant overhaul of the U.S. tax code, impacting both individuals and businesses. One of its key features was providing incentives for investment, aimed at stimulating economic growth.
Here’s a breakdown of why B is correct and why the others are not:
- A. Raising the tax rates on capital:
The TCJA did not raise taxes on capital. In fact, it generally lowered tax rates on business income, including capital gains, to encourage investment and economic activity. - B. Providing incentives for investment:
This is correct. The TCJA introduced several provisions to encourage businesses to invest. For example, it increased the bonus depreciation allowance, allowing businesses to immediately deduct a larger portion (up to 100%) of the cost of qualifying property in the year it is placed in service. This accelerated depreciation encourages companies to invest in equipment and other capital assets rather than delaying purchases. Moreover, the TCJA lowered the corporate tax rate from 35% to 21%, which increased after-tax profits and made investment more attractive. It also introduced the Qualified Business Income deduction for pass-through entities, encouraging investment in small and medium businesses. - C. Eliminating the deduction of entertainment expenses:
While the TCJA did limit deductions related to entertainment expenses, this is not the primary way it affected business taxes overall. This change was more of a compliance tightening measure than a broad policy aimed at changing tax rates or investment incentives. - D. Raising corporate tax rates:
This is incorrect; the TCJA actually reduced the corporate tax rate significantly from 35% to 21%, which was one of the largest corporate tax rate cuts in decades.
Summary:
The 2017 Tax Act mainly aimed to stimulate economic growth by lowering corporate tax rates and encouraging investment through enhanced depreciation rules and other incentives. These changes made it more attractive for businesses to invest in capital, expand operations, and increase productivity. This is why choice B — providing incentives for investment — best captures the Act’s effect on business taxes.