Monday, May 16, 2011

Tax Breaks Are Not Subsidies

While discussing a proposal to discontinue tax breaks for oil companies, Senator Chuck Schumer thought it was imperative to make the following comment: "Let me get this straight, Republicans plan to dismantle Medicare while refusing to end this tax subsidies [sic] for big oil companies?"

I cannot reiterate this enough: tax breaks are not subsidies. A tax is "a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes, property, sales, etc." A subsidy is "a direct pecuniary aid furnished by a government to a private industrial undertaking, a charity organization, or the like."

Consider this: taxes are a necessary condition for the existence of subsidies. Under current politico-economic conditions, if a government distributes subsidies, then it levies taxes. Hence, if a government does not levy taxes (100% tax breaks), then it cannot distribute subsidies. Subsidies are government expenditures. All government expenditures come from taxation. Therefore, all subsidies come from taxation.

Half the battle with government intervention is lost when political authorities manage to influence the lexicon. A tax is a seizure of property one has acquired via production and voluntary exchange. A subsidy is a piece of property seized and then granted to a party that did not acquire it via production and voluntary exchange. It's essential that we distinguish the two.

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