Policy Recommendation - Tax Incentives in the US

Historically, tax incentives have been introduced into communities in order to directly improve targeted sectors or industries. They are designed to increase investment, incentivize research, and to improve economies in lesser developed regions. However, the implementation of tax incentives and the morality of providing certain corporations with disproportionate support has been highly debated. It is difficult to quantify the true impacts of these incentives, and many scrutinize the incentives on its multiple levels, whether that be state or federal. 

According to a study conducted by the Journal of Economic Perspectives, states averaged between $5 and $216 in incentives for individual firms in the year 2020. With investments this large into each individual firm, there would be an expected increase in economic growth in areas that these incentives took effect, but there was no evidence to indicate the success of companies with incentives over those without. The generally accepted truth is that tax incentives on a more widespread level, typically national, are the ideal way to implement incentives. Targeting individual corporations is a complicated process that rarely provides any substantial improvement, and having a model that can be widely accepted would allow fewer controversies. Currently there are forms of tax incentives like statewide corporate income tax credit, property tax abatement, sales tax exemption, and payroll tax refund, all of which could be adapted to fit this category. 

Tax incentives are tax cuts, lowered corporate tax rates, granted to businesses by a given government in order to incentivize businesses and large corporations to hold the majority of their operations in the country/state/nation that the given government belongs to. Often, businesses must meet certain criteria to qualify for these tax cuts. Tax incentives can also promote more ethical and sustainable business practices as part of the criteria that must be met to qualify. These special forms of tax cuts are used globally as a way to boost economies and stabilize economic growth. Having large corporations operating in a country can create jobs as well as bring valuable goods and services to that country. 

Prior to the Tax Cuts and Jobs act in 2017, corporate tax in America went as high as 35%. Compared to America’s economic competitors, that was a very high tax rate. Since 2017, the baseline corporate tax rate has been lowered drastically to 21%. However, due to corporate tax loopholes, big corporations have found ways to avoid taxes, some paying little to no corporate income tax at all.

Outlining a clear policy for corporate income tax by establishing a strict baseline, and adding on various cuts depending on different levels of qualifications from that baseline, would allow the United States to have more control, stability, and organization over corporate income tax. Having tax incentives would also promote a healthy economy and promote ethical business practices, such as fair treatment of employees, sustainability, and transparent marketing. 

The following policy establishes a rigid graduated tax bracket for corporations based on net income, a clear outline on how the tax cuts are established, guidelines on how businesses can qualify for these tax cuts, and other overarching details that will allow for a rounded policy. Through this policy, we hope to provide incentives to companies with a majority of assets (>50%) invested in either American corporations or located in American territories, and to Reward sustainability and ethical business practices. 

The following graduated income brackets will be put in place:

• $0- $200,000

• $200,000-$800,000

• $800,000-$1,700,000

• $1,700,000-$3,500,000

• $3,500,000-$10,000,000

• $10,000,000-$25,000

• >$25,000,000

Based on these graduated income brackets, a company will have to pay a certain portion of their corporate income to taxes. The percentage of the income paid will be broken down as follows:

• $0- $200,000: 7% 

• $200,000-$800,000: 8% 

• $800,000-$1,700,000: 11% 

• $1,700,000-$3,500,000: 13%

• $3,500,000-$10,000,000: 21% 

• $10,000,000-$25,000: 25%

• >$25,000,000: 27% 

In addition to revising corporate taxation in the United States, the government would also take action in the form of tariffs. Tariffs would be raised from 2.0% to 4.2% for corporations that start in the US and then leave, perhaps in search of more promising profit margins or prosperous economic situations. In effect, the tariffs would deter larger corporations from leaving the country as exporting back into the United States would make little sense. 

A reward system, again based on taxes, would further incentivize corporations to remain in the United States. For every year a company stays in the US, following the first year they are approved for corporate tax cuts, they will get an additional .2% tax cut. The percentage through this particular eligibility would be capped at a 5% cumulative cut. Unlike the previous tax cut, this incentive has no tie to the income brackets previously laid out as any corporation or business will receive the same percent cut. 

In order to advance the fight against climate change, the United States has a duty to incentivize large carbon producers to stay environmentally conscious. If a company is ESG (Environmental social governance) qualified, the United States should be prepared to provide an additional 3% tax break. Although a substantial cut, especially for companies in lower tax brackets, the benefit to our environment far outweighs the possible loss in tax income. 

In order to qualify for the tax cuts, a company must:

• Must meet a minimum threshold payroll for employees;

• Must meet a minimum threshold amount of jobs created;

• Must pass a background check for ethical business practices.

Examples of unethical practices include, but are not limited to, the following:

• Poor working conditions for employees, or purposely ignoring employee environment complaints;

• Lack of employee benefits for full time employees, specifically healthcare;

• Deliberate product deception;

• Tax avoidance;

• Worker’s rights abuses.

If a company does not apply or qualify for the tax cuts, a company will be taxed based on the following percentages, again scaled to a graduated income bracket:

• $0- $200,000: 10%

• $200,000-$800,000: 12%

• $800,000-$1,700,000: 15%

• $1,700,000-$3,500,000: 17%

• $3,500,000-$10,000,000: 25%

• $10,000,000-$25,000: 29%

• >$25,000,000: 31%

Although the loss of government income from corporate taxes may be of some concern, the economic benefit eventually brought about from homeland corporations will balance out the losses. Lower unemployment rates, and therefore decreased welfare and subsidy cost, will continue to benefit the country beyond the immediate tax income. 

Through the tax incentives laid out, the goal is to provide incentives to companies with the majority of their assets (>50%) invested in either American corporations or located in American territories, and to reward sustainability and ethical business practices.

We worked on this project in our International Relations class. Rojan Naimi, Grayson Gooden, and I drafted this proposal for Ms. Gladden after reviewing United Nations processes. I want to thank Rojan, Grayson, and Ms. Gladden for their collaboration and ideas!