Tax incentive

A tax incentive is an aspect of the tax code designed to incentivize, or encourage, a certain type of behavior. This may be accomplished through means including tax holidays, tax deductions, or tax abatements. Tax incentives are targeted at both individuals and corporations.

Individual Tax Incentives

Individual tax incentives are most prominent in the federal income tax code in the United States, and include deductions, exemptions, and credits. Specific examples include the mortgage interest deduction, individual retirement account, and hybrid tax credit.

Corporate Tax Incentives

Corporate tax incentives more typically include federal, state, and local governments. The federal tax code provides a wide range of incentives for corporations, totaling $109 billion in 2011 according to a Tax Foundation Study.

The Tax Foundation categorizes federal tax incentives into four main categories, listed below:

• Tax exclusions for local bonds valued at $12.4 billion.
• Preferences aimed at advancing social policy, valued at $9 billion.
• Preferences that directly benefit specific industries, valued at $17.4 billion.
• Preferences broadly available to most corporate taxpayers, valued at $68.7 billion.

Corporate tax incentives provided by state and local governments are also included in the tax code, but many times are directed at individual companies involved in a corporate site selection project. Site selection consultants negotiate these incentives, which are typically specific to the corporate project the state is recruiting, rather than applicable to a broader industry. Examples include:

• Corporate income tax credit
• Property tax abatement
• Sales tax exemption
• Payroll tax refund

See also

• Tax Exemption
• Tax Competition