Tax Breaks Are NOT Subsidies

December 2, 2013

By: Kelly Diamond, Publisher

Tax Breaks Are NOT SubsidiesLet it be known that I oppose ALL bailouts, bail-ins, subsidies and welfare.  I don’t care WHO gets it.  It could be a poor little old lady in Harlem… or a big corporation like Solyndra.  I don’t like stealing from one to give to another.  I like people voluntarily giving to those who they believe either deserve it, earned it, or need it.  PERIOD.

With that important disclaimer out of the way, I felt a conviction of conscience to address the matter of welfare and subsidies since they muddy the waters greatly for Capitalism. 

A Few Distinctions

1.  Capitalism simply is an economic system in which the means of production, distribution and exchange are conducted by private businesses or individuals.  Contrast that with Socialism where the means of production, distribution and exchange are controlled by a collective or centralized entity like government.

2.  There is a difference between giving someone money and letting someone keep their money.  The two are often conflated and often wrongly tossed under the same umbrella. 

Corporate Subsidies

I don’t like paying for corporations to stay in business except through the use of their goods and services.  I absolutely think businesses that are in high demand will stay well in the black if they keep their costs low, their quality high, and their prices right.  But that requires nothing more from the private individual than their voluntary patronage!  That is proper commerce. 

You want X, I have X.

I want Y, you have Y.

You want X more than Y.

I want Y more than X.

We got a deal!

Here’s where I get annoyed: it’s still called a subsidy when corporations receive tax breaks.  Here’s how the dictionary defines “subsidy”:

1.  a direct pecuniary aid furnished by a government to a private industrial undertaking, a charity organization, or the like.

2.  a sum paid, often in accordance with a treaty, by one government to another to secure some service in return.

3.  a grant or contribution of money.

I’m seeing phrases like “pecuniary aid furnished by government…”, “a sum paid”, and “a grant or contribution”.  Know what I’m NOT seeing?  “TAX BREAK”!  You know why?  Because letting someone keep their own money isn’t the same as giving them money!  Otherwise, every thief that thinks better of robbing you has essentially engaged in a charitable act.

Tax breaks are NOT subsidies.  Government didn’t GIVE them anything.  They didn’t subsidize a damn thing by allowing them to keep their money.  I’ve said this before, but it’s worth mentioning again, when government allows people to keep their money, that is not a cost to the government.  Just like when a commission based salesman makes 10% of $50k rather than 10% of $100k.  It’s a reduction in collection and potentially a reduction in revenue.  But not a cost.  A cost is tied to the price of something paid for.  So keeping the electricity running in a building is a cost.  Paying employees is a cost.  Maintenance of machinery is a cost.  Not bringing in revenue isn’t a cost because you didn’t get anything for it.  You paid nothing out.  You simply didn’t bring as much in.

This is important because the game being played goes beyond a semantic one, but a political one, predicated on the assumption that you wouldn’t know the difference or dare to question it.  Behold: If I claim the interest on my student loans or the interest on my mortgage on my taxes, I get an exemption.  No one calls it a subsidy.  It’s not considered “welfare” that I have a reduced tax obligation due to exemptions that I claim.

Moreover, the fact that I pay a lower effective tax rate than someone like Mitt Romney is likewise NOT called a subsidy.  At no point does anyone say people in lower tax brackets are being subsidized by the government, unless they are actually on the dole.

What is equally bothersome is, it’s not just the extreme semantic license taken by these spin doctors, but that these exemptions are offered as acts of cronyism.  These are not exemptions that apply to all under similar circumstances, like the example of claiming exemptions for student loan or mortgage interest.  These are exemptions for corporate favorites of politicians.  This sort of political behavior is a blight on the good name of Capitalism. 

Make no mistake: I believe taxes in general should be abolished.  BUT, if we are to have them, then the political favoritism needs to stop.  This is why we have a tax code in the United States that makes “War and Peace” look like a trifold.

A site called Good Jobs First, did an in depth study on the corporations that receive $75 MILLION or more in “subsidies”.  These are considered “Mega Deals”.  But what is interesting, is they include the all these “tax incentives” which have nothing to do with receiving money from other tax payers.  Grants, some bonds, reimbursements are all forms of money coming from the other tax payers.  But allowing a company to keep its own money shouldn’t be counted as part of that.  It should be called out separately to show that there are benefits to low/no taxes.  That revenues can be generated when tax burdens are kept low/non-existent. 

There seems to be a big brouhaha over Boeing getting this uber mega deal from the state of Washington.  There’s $44 Million awarded in actual tax payer money for their infrastructure and training facility.  That’s wrong.  But the remainder of the near $12 Billion “subsidy” is tax credits.  Kind of misleading isn’t it?  I mean, sure, the citizens of the state of Washington could begrudge the fact that a large corporation like Boeing is dodging nearly $11 Billion in taxes, but if Boeing were to just up and leave the state of Washington, which it has every right to do, and “shop” for a more tax friendly location… then Washington loses the jobs and whatever tax benefits it did get from Boeing altogether.  So the question is: is something better than nothing?  Or is it really going to be this “all or nothing” game with the “fair share” crowd?

(Sidebar: I played around with the “Subsidy tracker”, and if you plug in “cost reimbursement” as the type of subsidy and type in “greater than” $1,000,000 and hit search… the search result is rather interesting.  The majority of them are film production companies mainly from Michigan and Alabama.) 

I do begrudge government picking favorites by giving preference to some and expecting (even enforcing) full compliance from their competition.  I think it’s fabulous, however, that corporations DO pit government against government to get the best tax rate!  Individuals do the same thing which is why Arizona, Texas and Florida see the greatest number of relocating Americans than any of the other states in the union.  If it were just a simple to do that internationally, I’m sure we’d be seeing a LOT more expatriation than we do already. 

There are, however, strategies for individuals on how to minimize the tax burdens and maximize what you keep.  Internationalizing your assets into various jurisdictions serves a myriad of purposes, the most important of which is protecting your assets.  GWP Insiders has ideas, information, resources and connections to folks that can help you do just that.  Click here now to find out more!

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