Our elected officials and those running for office frequently speak about making corporations pay their fair share and doing so by closing loopholes. So, we should know what a loophole is and which ones they intend to close, don’t you think?
“Loopholes”, as they have come to be known are simply tax exemptions and credits.
General Business Tax Credits
General business tax credits provide incentives for business activities beneficial to the American public or the economy in general. The US government often use tax laws to encourage, or discourage, certain activities. Want people to do more of something? Offer a tax break for it. Some of the credits available to businesses are these:
Investment credit – The federal tax code includes a variety of tax credits designed to promote different types of investment. In general, the investment credit is available to property owners who engage in specific types of projects on their property.
• Qualifying advanced coal project credit
• Qualifying gasification project credit
• Qualifying advanced energy project credit
• Rehabilitation credit
• Energy credit
Work Opportunity Tax Credit (WOTC) – A Federal tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment. WOTC joins other workforce programs that incentivize workplace diversity and facilitate access to good jobs for American workers. Target groups include:
• Unemployed Veterans (including disabled veterans)
• Temporary Assistance for Needy Families (TANF) Recipients
• Food Stamp (SNAP) Recipients
• Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties)
• Vocational Rehabilitation Referred Individuals
• Supplemental Security Income (SSI) Recipients
• Summer Youth Employees (living in Empowerment Zones)
Biofuel Producer Credit – A tax credit offered business who will produce certain biofuel mixtures that meet EPA standards.
Research Credit –Designed to encourage investment in research and development (R&D) of certain technologies and areas of growth.
Low-income Housing Credit – Owners of rental buildings in low-income housing projects may qualify for the low-income housing credit.
Disabled Access Credit – Small businesses may receive an annual tax credit for help making their businesses accessible to persons with disabilities.
Renewable Electricity Production Credit – A tax credit for businesses which begin electricity generating wind projects as well as other eligible renewable energy technologies.
The CDC Tax Credit – An effective tool for attracting private resources to community economic development, it allows for a credit for contributions to selected community development corporations.
Biodiesel and Renewable Diesel Fuels Credit – Promotes the use of biodiesel as a fuel.
The New Markets Tax Credit (NMTC) – Established in 2000 as part of the Community Renewal Tax Relief Act of 2000. The goal of the program is to spur revitalization efforts of low-income and impoverished communities across the United States and Territories
Other credits available:
Credit for small employer pension plan start-up costs
Credit for employer-provided child-care facilities and services
Low sulfur diesel fuel production credit
Nonconventional source fuel credit
Alternative motor vehicle credit
Alternative fuel vehicle refueling property credit
Qualified Plug-n Electric and Electric Vehicle Credit
So, What can Happen is This
Business owners and those that run large corporations aren’t stupid. When they find themselves in the right place at the right time to take advantage of tax credits that add up to more than the federal income tax due, they will have zero tax liability. Unlike individuals who can take advantage of tax credits to get a refund when their tax liability is less, the Business Tax Credits due not create a refund. Instead, the business can carry over unused credit to offset taxes owed in future years.
An Important Conversation to Have
Instead of the rhetoric about corporations not paying their fair share, we should be having a discussion about the value to the American public of certain investments made, compared against the tax lost when a taxpayer uses an eligible credit. If we no longer value the investment made in certain areas that qualify for a tax credit, then end the credit. If the credits bring important value to the public, then continue the credit and stop the rhetoric about making corporations pay their fair share. It’s counterproductive.