Instructions
locate at least three real world examples of the various tax incentive strategies that public agencies use.
Describe how the incentives function within the community they are in and how effective each incentive has been in helping to create jobs, bring in money, and aid in economic development of the community.
Discuss the similarities and differences among the three examples you chose.
Your response should be at least 300 words in length. You must use at least one scholarly source in addition to your textbook to complete this assignment. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations. All references and citations used must be in APA style.
Essay
Tax Incentives Strategies
Tax incentive is a sub-section of a wide concept of tax expenditure, which is a provision in the tax law giving special treatments towards a taxpayer group of taxpayers in the form of exclusions, tax credit or deferral of payable tax. Therefore, tax incentive can be termed as a provision aimed at encouraging private taxpayer’s behavior in pursuit of public development (Matkin, 2007). Governments give tax incentives to corporations with an aim of increasing public employments, increased research benefiting the larger population and other strategies that ensure growth. Tax incentives take three common forms: tax abatements, tax exemptions, and tax credits.
Tax Abatements
These are partial tax liability reduction for a given period. Tax abatements allow one to deduct part or whole of their expenses and are commonly associated with property tax. This incentive aims small groups of real estate owners. The U.S Department of Housing and Urban Development created Renewal Communities and Empowerment Zones where different tax incentives were given. Businesses within these zones can enjoy tax abatements of up to 35,000 Dollars on the cost of specific equipment in its first year of use (Lynch, 2007). This incentive evaluates to cheaper housing and encourages real estate companies to own equipment instead of leasing; it has also encouraged higher investment and hiring of residents.
Tax Exemptions
This incentive excludes a taxpayer from paying taxes for a designated property or activity that was previously being taxed. U.K Government has exempted charitable organizations from different kinds of taxes ranging from corporation tax, business rates, and income tax as they have shown to benefit the general public. The organizations can then use the amount they could have paid as taxes in performing other charity work or employing the country’s citizens.
Tax Credits
This is a permission by the law towards individual taxpayers to reduce their tax liability by undertaking public engagement such as corporate recruitment of new employees. United States Government has a hybrid vehicle tax credit, automobile owners or businesses can claim a tax credit of up to 3,400 Dollars when they purchase or place a hybrid vehicle in service after 31st December 2005 {Section 1341, Energy Policy Act (EPAct) 2005}. This Act is aimed at stabilizing fuel economy and improves fuel conservation. It also allows the taxpayers to save large amount of money (Scott, 2007).
Comparison
The three tax incentives provided by different countries have resulted in numerous benefits for the locals as well as businesses. Tax abatements in the U.S Renewal Communities and Empowerment Zones resulted in huge investments within the zones which led to high employment and affordable houses. The tax exemptions by the U.K Government also gave the charitable organizations boost towards meeting their charity provision, environmental preservation and also employing locals. U.S hybrid vehicle tax credit ensured higher savings by the individuals and businesses that they could utilize in providing employment or expanding their businesses.
References
Lynch, R. G. (2004). Rethinking growth strategies: How state and local taxes and services affect economic development. In Economic Policy Institute.
Matkin, D. S. (2007). Corporations, state agencies, and the management of state corporate income tax incentives. ProQuest.
Scott, M. (2007) Strategies for Hybrid Vehicle Purchase Tax Incentives. Government Fleet.
