Are tax credits and special deductions 'subsidies'? 

There has been a debate on the Right over tax credits and other special tax deductions -- whether they're good or bad, whether they count as subsidies and corporate welfare.

Some of this is semantic, and some of it is about policy. I know conservatives and libertarians -- author Tom Woods and former State Sen. Alex Mooney, to name two -- who support almost any tax break proposed on the idea that every tax break, however arbitrary, means more freedom and less government. On the other hand, most conservatives and libertarians who are not politicians would gladly scrap every deduction and tax credit in favor of an across-the-board rate cut of equal or greater savings to taxpayers.

Much of the debate is semantics, but the semantics are important, I think. As I see it, targeted tax breaks count as government interference in the economy, and thus often as subsidies and corporate welfare.

Take the ethanol blenders tax credit: for every gallon of ethanol blended into gasoline, a gas company knocks 45 cents off its corporate income tax bill. This is clearly a subsidy, and nearly everyone calls it an ethanol subsidy. The credit itself isn't offensive, but the credit paired with high tax rates is -- it's government picking winners and losers, distorting the economy.

As with direct subsidies, one can make an argument for tax credits aimed at helping the poor, protecting national security, or helping the environment. But on the score of helping the economy, the more neutral the tax code, the better.

My column today discusses how Obama, while calling for a simplified tax code, has multiplied special carveouts for individuals and corporations.

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Timothy P. Carney

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