What Is a Corporate Tax Break?
Corporate tax breaks are incentives offered by various governments (i.e., federal, state and local governments) to corporations for performing certain tasks or accomplishing certain goals. For example, a state government can create an incentive for corporations to locate facilities within its borders by granting a tax break on state income tax. Another example is the federal government using tax credits as an incentive for companies to cut air pollution.
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Tax Codes
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Federal, state and local tax codes are frequently amended. When a government wants to accomplish an economic, social or environmental objective, new laws are created in an effort to stimulate a certain type of behavior or economic activity through corporate tax breaks.
Corporations
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Corporations will naturally take advantage of tax breaks that are found to be beneficial to their goals and objectives. The owners of corporations are subject to double taxation because corporations must pay income tax on profits, then the stockholders must pay income tax on the profits that are distributed. Every dollar a corporation saves on income taxes is value added for the stockholders.
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State and Local Governments
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State and local governments want to grow their economies, and they use tax breaks to entice corporations to locate within their boundaries. Quite often, state and local governments find themselves competing for these corporate entities. Using tax breaks for economic growth can be a zero-sum game for the overall economy because one jurisdiction's gain is another's loss.
Federal Government
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The federal government uses corporate tax breaks extensively. Quite often, when a tax break is given, the revenue must be made up somewhere else, which means taxes may go up for other taxpayers.
Tax Reform
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Tax reform is a complex issue that may never be resolved. True tax reform would grant a tax break to everyone, advocates say, because tax codes would be simplified and every taxpayer would pay his fair share.
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