Tax abatement, defined as the decreasing of the tax responsibility of a firm by government, is one of the tools which government uses to motivate behavior in a firm. A tax abatement credit is generally given to a firm when the government wants the saved money to be spent in another way: to increase savings or spending rate, invest in equipment, or others.
Tax abatement means a tax incentive given to business‘ for the purpose of spending it in another way. These motivations are common to in the business world; tax breaks for research and development, depreciation, and more. These perks allow a business to focus on the future rather than trying to survive in the present.
From a governmental standpoint, a tax abatement program is a tool to motivate business to operate a certain way. Similar to the savings and loan crisis of the 1980’s, where government increased regulations, tax abatements have the opposite effect. Rather than preventing certain behavior, a tax abatement agreement can make other behaviors easier and more appealing. This type of approach is favored by many economists.
Claus is the owner of a technology company. Creating microprocessors, Claus has many expenses to cover along the path of creating a better product. Claus must constantly be thinking forward to what the market will do.
Claus’ company experiences many tax abatements. First, he has a depreciation schedule for many of his capital expenses. Thanks to the tax abatement forms he completes, he can recover the expense of these items rather than having to pay for them. Claus’ company also receives tax abatement for research and development. Here, his company can recover the expenses of r&d. Due to the fact that r&d takes quite a while to create return on investment, Claus can use the cash he saves rather than having it tied up into finding a better way to do business.
Claus is very thankful for the tax abatement he receives. It makes his life, as well as his business operations, much easier. When Claus goes home he must fill out yet another tax abatement letter; the IRS discount for having a family with children.
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