Since many people continue to unwittingly promote socialism with their misguided insistence that "every tax cut is good," I'm going to illustrate why a TARGETED (e.g., just for one entity) tax break is welfare, economically equivalent to a subsidy, and a cost to other taxpayers.
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The fact that Di is receiving services paid for by others rather than dollar bills from others does not make the transfer any less a welfare subsidy.
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What about the claim that Di's arrival will boost the economy and more than pay for her special tax break? Many of the proponents of this view seem unaware that they are advocating central planning, a main tenet of socialism. To see this, let's return to the illustration.
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Advocates of Di's special tax break are saying that, ALL ELSE EQUAL, they would rather give Di a very large tax break (75%) than give everyone a modest tax break. In other words, they believe that government central planners can outperform the market by shifting money to Di.
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If your reply is "give others a tax break, too," then you've missed the point. You can't give others a tax break AND hold all else equal. The budget must be balanced; government spending would have to be cut. The relevant analysis is how best to tax at a GIVEN level of spending.
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We could rerun this illustration at a much lower level of government spending, and the relevant analysis again would be how best to tax at this level of spending: Is it best to give one person a very large tax break or to give everyone a modest tax break?
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For a primer on why the free market is superior to central planning, read this: https://fee.org/articles/the-use-of-knowledge-in-society/ …. In short, keeping more money in the hands of everyone produces better economic outcomes than giving a special advantage to one person.
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When advocates of Di's special tax break talk about the economic growth and jobs it will create, they commit the broken window fallacy: https://fee.org/articles/the-broken-window/ …. They ignore the break's opportunity cost; the government has deprived Al, Bo, and Cy of a tax break. That's a net loss.
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We can imagine variations of this illustration. For example, maybe Al, Bo, Cy, and Di already live in the same state, and then the government gives Di a special tax break for "economic development." The end result, however, is the same: The special break is economically harmful.
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This illustration is not meant to suggest that humans can design a perfect tax code. But when the government intentionally gives a special tax break to one entity, not only is the government undermining the Rule of Law, but it also is knowingly harming the economy.
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Bottom line: Targeted tax breaks are bad.
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Happy birthday, Frédéric Bastiat!
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End of conversation
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In my community we handed out a TIF to a large shopping center. Our liability is compounded because it's an impactful land use. Traffic, specialized fire equipment, strain on police. Disproportionate to everyone else so demand for service not equal since the land use is a pig.
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