What are considered “tax incentives”?

Tax incentives refer to various policies designed to encourage certain economic activities by providing financial benefits through the tax system. These incentives typically include tax credits or deductions that lower an individual's or business's tax liability, making specific investments or behaviors more attractive.

In this context, the option that mentions tax credits or deductions directly aligns with the concept of tax incentives. Tax credits can directly reduce the amount of tax owed, while deductions can lower the taxable income, both effectively incentivizing behaviors that policymakers wish to promote, such as investing in clean energy, education, or hiring certain demographics.

On the other hand, while programs that reduce tax rates for businesses can also be seen as a form of tax incentive, they are not classified as such in the same way tax credits and deductions are. Mandatory taxes on income do not serve as incentives but rather as obligations that taxpayers must fulfill. Loans provided by the government do not fall under tax incentives since they involve the provision of financing rather than adjustments within the tax code.