Tax incentive facts for kids

A tax incentive is a way for the government to encourage businesses to grow and create jobs by letting them pay less in taxes.

Effects

Tax incentives can have a positive or negative impact on the economy.

Good Effects

• Attracts Investment: When companies see they can save money on taxes, they might want to invest in a country.
• Creates Jobs: More businesses can mean more jobs for people.
• Encourages Innovation:Companies might spend more on research and new technologies.
• Helps Communities: Tax incentives can improve areas that need extra help.

Bad Effects

If tax incentives are not set up correctly, they can cause problems:

• They might hurt the government’s money situation.
• Companies could focus too much on one area and ignore others.

Costs of Tax Incentives

There are four main costs associated with tax incentives:

• Resource Allocation Costs: This is the money the government loses because of the tax breaks.
• Compliance Costs: If tax incentives are complicated, it costs more to manage them and make sure everyone follows the rules.
• Revenue Costs: This is about how much it costs to check who gets the tax breaks and if they really deserve them.
• Corruption Costs: If there aren’t clear rules, some people might cheat to get tax incentives unfairly.

Pseudo-incentives

A tax incentive can refer to any relative change in taxation that changes economic behavior. Such pseudo-incentives include tax holidays, tax deductions, or tax abatement. Such "tax incentives" are targeted at both individuals and corporations.

Individual incentives

Individual tax incentives include deductions, exemptions, and credits. Specific examples include the mortgage interest deduction, individual retirement account, and hybrid tax credit.

Another form of an individual tax incentive is the income tax incentive.

Corporate tax incentives

Corporate tax incentives can be raised at federal, state, and local government levels. For example, in the United States, the federal tax code provides a wide range of incentives for corporations, totaling $109 billion in 2011, according to a Tax Foundation Study.

List of largest US tax incentive deals

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

Historical preservation tax incentive

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 historical preservation tax incentive, which encourages people to fix historic buildings. The initiative not only helps preserve historic buildings but also creates jobs and improves communities.

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

1. 20% Tax Credit: This is for fixing up buildings that are listed as historic or are in a historic district recognized by the National Park Service.

2. 10% Tax Credit: This is for fixing up older buildings (built before 1936) that are not considered historic and are used for business purposes.

See also

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