02.12.2020

Corporate Tax Subsidies, Funny Thinking, and Money Math

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It’s impossible to talk to a tax-zealot without hearing something like, “we could afford X, Y, Z if we stopped the biggest corporations.”

Invariably, this phrase is used in reference to corporate tax breaks. 

But “we” (presumably ordinary taxpayers) do nothing of the sort. 

A government subsidizes a company or industry when it gives them money that they would not otherwise have.

Allowing people (and the companies they own) to keep what they have already earned is not a subsidy. 

Imagine someone at the table beside you the next time you are out to eat claiming to have subsidized your meal on the basis that he did not steal money from your wallet.

Claiming that “we” subsidize companies like Amazon, Google, and Apple when they receive a tax break or exploit a tax loophole (ie. act on the economic incentives provided by the law) is no less absurd. 

Without fail, tax-zealots then claim that they’re left footing the bill for the “subsidies.” 

Again, this is false.

Suppose that in Year 1, total tax revenue was $100 and that you paid $2 and corporations paid $15. In Year 2, new laws were passed and corporate tax revenue dropped to $5. 

All else being equal, total revenue dropped to $90 but you still paid $2. Your taxes as a percentage of total revenue increased from 2% to 2.2% (which is $2 out of $90). But nominally, you paid the exact same amount.

There is no line on any tax return that increases your Adjusted Gross Income or the applicable tax rate for the tax avoidance of others. Tax zealots would argue that taxes have gone up on ordinary people to pay for corporate tax subsidies but that simply isn’t true – their burden has been lightened. 

Presumably, the $10 in “lost” revenue would likely be made up by borrowing. Are we to believe that tax-zealots are now suddenly concerned about government debt?

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