Tax credits are designed to modify which of the following?

Tax credits are intended to directly reduce an individual’s or business's tax liability, which is the amount of tax owed to the government. Unlike tax deductions that reduce taxable income (thereby modifying the tax base), tax credits provide a direct subtraction from the amount of taxes owed, effectively decreasing the total liability dollar-for-dollar. For instance, if a taxpayer has a tax liability of $1,000 and qualifies for a $200 tax credit, their final liability would decrease to $800. This mechanism is particularly advantageous because it can yield a more significant tax benefit compared to deductions, especially for taxpayers in higher tax brackets where deductions only reduce income rather than the tax owed.

The other options do not represent the purpose of tax credits; modifications to the tax base relate to how overall income is calculated for tax purposes, and while tax deductions certainly influence that calculation, they function differently from tax credits. Therefore, option C accurately reflects the primary function of tax credits in taxation policy.