[P-Sleazy]

The best way to explain this is with an example.

John and Jane both make 50k a year. Lets say they both pay roughly 12k in taxes a year. Now, John will have cuts exercised on him and Jane will have Credits.

John gets a 10% tax cut to his taxes. He does nothing. He saves 1,200 dollars with his tax cut. He likes to save money so he doesn't spend it and just puts it in a savings account accruing 2%/yr. Next year his 1,200 only grew to $1,224. $24 taxed at 15 percent (flat tax on investment/interest income) is...$3.60. So thats $1196.40 that the government loses out on if John saves. If he spends all the money, all government gets is whatever sales tax is and the tax rate on the stuff he spent it on is. Lets say sales tax is 7% and he spends all $1,200. Thats $80 that goes into sales tax and $1,120 that is spent on actual products. now the sellers of those products have 23% tax rate on profits. Those profits are $527. The total tax they then pay on this is $121. So the total that the government loses in revenue ends up being (1200-[121+80]) $999

Jane however options into the $2,000 tax credit for buying a new car. The car costs $17,000, but with the tax credits, Jane still spends $17,000 on the car (which she can't afford so she gets a $7,000 loan at 4% interest), but gets to pay $2,000 less in taxes for the year. So the total effect Jane's purchase is still $17,000 to the car seller, and she owes a bank 7,000 plus accrued interest. Which the bank likes, cause then that means the bank makes more money. Lets say Jane pays the loan off over 24 months (one payment a month of $303). The total amount of money she pays back is $7,300.

Now if we also go back to the seller of the car, he sold a car for $17,000. After he takes out his cost to make/sell car, lets say he profits $8,000 (47% profit, yes unreasonable, but just to keep numbers simple and the same as above) off of that car alone, but his tax rate is 23%. So he has to pay the government $1,840 in taxes (of course this is mixed in with all the other cars he sold that year).

Now lets go to the bank, which made $300 in interest on that loan. Interest is taxed at a nice 15% rate. So the bank ends up paying $45 in taxes on this loan to the government. So the true loss to the government on giving this $2,000 tax credit to Jane actually only becomes (2000-[1840+45]) $115. This also doesn't include the property taxes you have to pay for the car over the time you own it (but that is best left alone just cause tax credits can vary for purpose).

As such, the government is more atp at being able to recover from giving you a tax credit as opposed to a tax cut, even if tax rates remain the same on the supplier side (which they will vary). And of course what you give tax credits on also varies. Like the child tax credit. You get 3k for each child for the first 3 or something like that. But you easily spend much more per child on any given year.