[quote]phaethon wrote:
[quote]reddog6376 wrote:
No it’s not. It is only the same to the gov’t and to the company receiving the benefit. It is not the same to the rest of the tax-payers. If it’s my tax money going into the subsidy, then it punishes me. If it is a tax break, then it only effects the gov’t and the company receiving the benefit, it has no effect on me. A subsidy and a tax-break are two very distinct and different things and you are twisting the definition by trying to blur them into one.[/quote]
This is getting tiresome. Lets pretend the government has a budget of $100. It will raise this via taxes or borrowing. This spending is not tightly coupled to taxation. It will borrow any difference.
There are 3 people in this economy. Jane, Bob, and Steve. Normally Jane pays $30 in taxes, Bob pays $15 in taxes, and Steve pays $40. The other $15 is borrowed at 10% interest.
Jane works towards the nations interests and so the government wants to encourage her via either a tax break or a subsidy. The government is trying to decide if it is fairer to implement a subsidy or instead give a tax break. They think her contribution should be reduced to $20 either way.
Option 1: A tax break.
The government tells Jane that because she is so awesome she only has to pay $20 instead of $30.
They make up the $10 deficit by either borrowing $10 at 10% interest or by making Bob and Steve pay higher taxes.
Option 2: A direct subsidy.
Jane still has to contribute her $30 to the government. However, from the $100 slush fund the government will give her $10. If spending levels, outside of this subsidy, do not change then the government still has a $100 budget but now only have $90 (i.e. a $10 deficit).
They make up the $10 deficit by either borrowing $10 at 10% interest or making Bob and Steve pay higher taxes.
Outcome: The exact same.
The only way there can be a difference is if the government reduces spending after offering a tax cut or after offering a subsidy but not in both cases. Historically, and realistically, this is not the case.
[/quote]
Your argument assumes a fixed economy, which is false.
A. Jane is given a tax break so she keeps more of what she earns which encourages her to make even more and the size of the pie increases. Bob and steve’s taxes are allowed to remain the same.
A1. Jane takes the extra money she has earned and uses it to purchase items which increases the money in the economy helping the size of the pie increase.
A2. Regardless oh tax breaks, a business must deliver a wanted product or they will fail. Which will make way for a business that is able to deliver a wanted product.
B. The gov’t pays Jane a subsidy to help make her business profitable. She realizes that good decisions and hard work have a lesser impact than gov’t subsidies, so rather than work harder, she just collects the govt check. The size of the pie does not grow.
B1. Bob and Steve now have less money to invest in their business or hire people. There is less money in the economy and the size of the pie shrinks.
B2. The gov’t subsidy skews the market, keeping failing business alive that should fail. We end up paying farmers not to grow crops and pouring milk into the garbage.
A tax break and a subsidy in no way produce the same result.