Suppose the government attempts to maintain government services at the level provided prior to Di's arrival, i.e., $4 per person in services. Since the state now has four people, the government will need to collect $16 in taxes. It currently collects $13.
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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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Yesterday was Bastiat's birthday
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