Critical to the success of current efforts to reform and restructure education and other community supports and services to improve the lives of children and their families is the way in which they are financed. This report of The Finance Project focuses on ways of using tax policies to help build strong local communities that can support families in raising their children. The report lays out the key roles of taxes in local economic development, considers types of tax incentives (deductions, credits, deferrals, exemptions and exclusions) and their intended effects, and principles for using tax incentives wisely. The report concludes with some proposals designed to illustrate how tax incentives can be used effectively to promote community building and development. (KB)