Tax incentive facts for kids

A tax incentive is like a special deal from the government. It helps businesses save money on their taxes. The idea is to encourage these businesses to grow, hire more people, and invest in new things. It's a way for the government to guide how money is spent and help the economy.

How Tax Incentives Work

Tax incentives can have both good and not-so-good effects on a country's economy.

Good Things About Tax Incentives

• Attracts New Businesses: When companies can save money on taxes, they might want to build factories or offices in a certain country or state. This brings new business.
• Creates More Jobs: More businesses often mean more jobs for people. This helps families and communities.
• Encourages New Ideas: Companies might spend more on research and developing new technologies if they get tax breaks. This can lead to cool new inventions.
• Helps Local Communities: Tax incentives can be used to improve areas that need extra help, like building new schools or parks.

Challenges with Tax Incentives

If tax incentives are not planned carefully, they can cause problems:

• Government Money Issues: The government might lose too much money from taxes. This could mean less money for public services like roads or hospitals.
• Uneven Growth: Companies might focus too much on one area or industry that gets tax breaks, while other important areas are ignored.

What Tax Incentives Cost

There are different costs linked to tax incentives, not just the money the government doesn't collect.

• Lost Tax Money: This is the money the government misses out on because of the tax breaks given to businesses or people.
• Managing the Rules: If tax incentives are complicated, it costs money and effort to manage them. It also costs money to make sure everyone follows the rules correctly.
• Checking Who Qualifies: The government needs to spend money to check who gets the tax breaks. They also need to make sure those people or companies truly deserve them.
• Risk of Cheating: If the rules aren't clear, some people might try to cheat to get tax incentives unfairly. This is called corruption.

Different Kinds of Tax Incentives

A tax incentive can be any change in taxes that makes people or companies change what they do with their money. These can include things like a tax holiday (a period with no taxes), tax deductions (money you don't pay taxes on), or tax breaks. These "tax incentives" can be for individuals or for large companies.

For Individuals and Families

Tax incentives for individuals include deductions, exemptions, and credits. These can help people save money on their taxes.

• For example, the mortgage interest deduction helps homeowners.
• An individual retirement account (IRA) helps people save for their future.
• A hybrid tax credit might help people who buy certain fuel-efficient cars.

Another type of individual tax incentive is a special income tax break.

For Large Companies

Governments at different levels – federal, state, and local – can offer tax incentives to companies. For example, in the United States, the federal government offers many incentives. In 2011, these added up to about $109 billion!

Big Tax Incentive Deals in the US

Here are some of the largest tax incentive deals given to companies in the United States:

• Washington state gave Boeing $8.7 billion until 2040, partly for their 777X airplane.
• New York gave Alcoa $5.6 billion.
• Washington state gave Boeing another $3.2 billion.
• Oregon gave Nike $2 billion.
• New Mexico gave Intel $2 billion.
• Louisiana gave Cheniere Energy $1.7 billion.
• Pennsylvania gave Royal Dutch Shell $1.65 billion over 25 years for the Pennsylvania Shell ethylene cracker plant.
• Missouri gave Cerner Corp. $1.64 billion.
• Michigan gave Chrysler $1.3 billion.
• Nevada gave Tesla for its Gigafactory 1 $1.25 billion over 20 years.
• Mississippi gave Nissan in Canton $1.25 billion.

Helping Historic Buildings

Not all tax incentives are just for people or businesses. Some are designed to help everyone in the community. One example is the U.S. government's historical preservation tax incentive. This encourages people to fix up old, historic buildings. This initiative not only helps save important buildings but also creates jobs and makes communities better places to live.

According to a law called the Tax Reform Act of 1986, there are two main tax credits for restoring historic buildings:

• 20% Tax Credit: This is for fixing up buildings that are officially listed as historic. It also applies to buildings in a historic area recognized by the National Park Service.
• 10% Tax Credit: This is for fixing up older buildings (built before 1936) that are not considered historic but are used for business purposes.

See also

• Taxation in the United States
• Tax exemption
• Tax competition
• Texas Tax Code Chapter 313