2. Consider two people with incomes 3Y1 and $Y2, where Y1 > Y2 > 0. A person's tax rate is t2 on the rst Y2 dollars and t1 on the rest of his income, where t1 > t; > 0. They both deduct SD > 0 in child-care expenses when they le their income tax return. (i) Who benefits more from this deduction? Carefully explain your answer. It is easier but not crucial to explain your answer using math (algebra). (ii) Suppose the $D was not a deduction but instead a tax credit. Would that change your conclusion in (i)? Explain. (iii) 0n equityffairness grounds, would you recommend tax credits or deductions? Explain (iv) What efciency consideration would temper your answer in (iii)? Hint: Think about the effect on the government's budget and then carefully explain your answer. [Note: suppose someone earns $10,000 and faces a tax rate of 10%. If she is allowed a deduction of $200, then her tax liability is $0.1(10000 200) = $980. But if instead the $200 is a tax credit, then her tax liability is $[0.1(10000) 200] = $800. A deduction directly reduces a person's taxable income (i.e., from $10,000 to $9,800 in example above) while a tax credit directly reduces a person's tax liability (i.e., from $0. 1( 10,000) = $1000 to 0. 1( 10,000) $200 = $800 in the above example. A tax credit does not reduce taxable income]