Suppose the government wants to attract a new person, Di, to the state. The government is excited about all the business Di will bring, so it promises Di that her annual taxes will be only $1 if she makes the move. Di is thrilled and accepts the offer.
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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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The Federal budget doesn't have to be balanced. We create our own money. Also didn't you vote for the Trump tax cuts which went mostly to the rich??
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Well obviously republicans support cutting services.
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It’s ok. To pay for services for Al, Bo, Cy and Di, just borrow $ from ChiCom.
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