Reagan Hales

4 Ways Tax Abatements And Business Incentives Grow A Local Economy

When a business opens its doors, it creates a ripple effect that spreads throughout the community. The larger the business grows, the greater the impact it will have on the economy as a whole. While tax abatements and incentives are temporary, the ripples they cast travel far into the future.

To that end, the following are just a few of the positive impacts created by tax abatements and other incentives:

1. Strengthens other Businesses

People work hard for their money, and many prefer to spend that money locally. This means they spend their salaries buying food from the grocery store, selecting cars from the dealership, building homes, and even signing up their children for music lessons. Indeed, already established businesses stand to benefit each and every time a new business opens their doors. The increase in clients they acquire means that other businesses have the revenue needed to grow and expand by hiring new employees and investing in capital improvements, etc.  

2. Reduces Unemployment    

People need jobs, and jobs are created by businesses. When a business opens their doors, it creates employment opportunities that spread throughout the community. The employees of the business have the money they need to build homes, buy food, and fill their cars with gasoline. This means the local contractor finds steady work, the store hires new cashiers, and the Mom and Pop gas station down the street has the revenue to put another grandchild through college. Did you know that Amarillo has one of the lowest unemployment rates in the Lone Star State? 

3. Increase Tax Revenue

If a city offers a tax abatement for 5 or 10 years, the city still benefits from increased tax revenues. How is this? Again, it's because the people a business hires will spend their salaries within the local community. They buy products from the stores which means that sales tax receipts increase. They also build homes which means additional property tax receipts...and tax abatements and other incentives do this without the need to increase tax rates.

This is because if a new business, such as an aircraft manufacturing facility opens their doors, it can mean hundreds, if not thousands of new jobs. The collective tax revenue generated from the rise in sales and property taxes collected eclipses the value of the tax abatement or other incentives offered by the city.

Thus, while the city temporarily foregoes a little bit of revenue from the businesses that open their doors, it still generates positive revenue flow in the short-term. This allows the city to grow and expand without having to raise tax rates in order to fund the growth.

4. Tax Receipts Continue to Grow Long-Term After the Abatement Period is Over

Once a business is well-established within the community, the facilities and improvements that they have  added can then be taxed. Naturally, the tax rate and revenue that can be generated from developed property is higher than on undeveloped property. This creates a long-term source of revenue for the city that increases the long-term revenue the city can count on within the budget.           

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