Tag Archives: taxes

Forms of Subsidy

Posted on by
Reply

I’ve disparaged the concept of federal government subsidies in other writings, so I thought I’d take a post and identify some types of government subsidy to illustrate the range of handouts for which our pocketbooks are impressed.  Most of the forms below are Federal subsidies; although I do mention a few state-level subsidies, also.

One form of subsidy is direct money transfers.  These can take the forms of block grants to states, and they usually come with federal strings attached governing the use of the money, or the amount of money the states must put up in order to get the grant, or the state laws that must be enacted (vis., speed limits) in order for all of the grant to be delivered.

These transfers also often are based on the services being offered, as is the case with Federal Medicaid transfers, which depend on how many state citizens are eligible under the state’s rules.

Another direct transfer is unemployment insurance and food stamps.  In these programs, recipients have only to apply for the subsidy, and they begin receiving either money ( unemployment checks, for instance) or vouchers (food stamps are an example).

Another form of subsidy is preferential tax treatment for the favored group.  These can take the form of tax deductions or credits or exemptions from taxes.

Examples of tax credits include the Earned Income Tax Credit, tax credits to consumers for installing energy efficient items (e.g., geothermal heat pumps, residential-sized wind turbines, solar energy systems, and so on).  Other tax credits are aimed at the ethanol industry and renewable energy equipment manufacturers.

Tax deductions are available for oil and gas producers and for renewable energy producers and equipment manufacturers.  Other deductions exist for home (or business plant) mortgage interest, charitable contributions, age and disability on personal income taxes, and so on.

Individuals whose income is below a threshold are subsidized through being exempt from income taxes altogether.  The interest on some government borrowing (municipal bonds, for instance) can be exempt from taxes, and certain non-profit organizations are exempt from a variety of taxes.

Another form of subsidy is in the form of government loan guaranties, which enable the borrower to get loans at more favorable rates than they otherwise could.  These include, among others, student loan guarantees, home mortgage guarantees, and renewable energy company loan guarantees (recall Solyndra, et al.)

Another form of subsidy occurs through regulation.  A major example here is the protected monopoly status that utility companies and drug manufacturers get.  Such status protects the company from competitive pressures for a period of time (drug manufacturers and, not too distantly related, patent, copyright, license, and so on, holders) or for so long as government objectives are met (e.g., utility companies, who must comply with their (state) government rate requirements and criteria).

Other regulations are aimed explicitly at putting certain entities out of business.  The EPA’s clean air regulations aimed at coal-fired power plants are an example.

Another form of subsidy occurs through government mandates.  An example of these are mandates to buy (or sell) certain products (which can occur only at the expense of not having that money available to buy other products, even unrelated ones; or at the expense of not having that capital equipment or staff available to produce/sell other products, including unrelated ones).  The Patient Protection and Affordable Care Act’s Individual Mandate and the requirement to provide contraceptive services and abortifacients are illustrations.

Another type of mandate is a manufacturing one: producers must use fixed per centages of ethanol in gasoline manufactured for sale.  This mandate exists solely to create a market for ethanol that otherwise might not exist.

Another form of subsidy consists of government preferences.  These include preferential hiring requirements (military veterans, minorities, disabled, and so on) and preferential contract award requirements.  Preferential contracting includes preferences for minority-owned small businesses, and for small businesses, generally.

Another form of subsidy occurs primarily at the state level, particularly in those states that have union shop laws.  Such laws subsidize the unions either by requiring individuals to join a union as a condition of employment or by allowing the union to collect union dues from all employees in a company whether the employees are union members or not.  Such laws represent a large source of income for the unions in the form of dues they wouldn’t otherwise be able to collect.

Perhaps the most insidious subsidy is in the form of government-mandated affirmative action programs.  Such programs require the government to give greater weight to some citizens in its hiring (which weight can only come at the expense of other citizens trying to compete for the same job) and to give greater weight in its contracts to some entities—which again can come only at the expense of other entities bidding on the same contract.  Note that while these are closely related to the government preferences noted above, they differ in a critical way: affirmative action is based solely on race, gender, or ethnicity.

This is not an exhaustive list, either of type of subsidy or examples within each type presented, by any means, but you get the idea.  Nor have I offered any judgment concerning the legitimacy of any of the subsidies; that’s for another post.

The Berlin Wall

Posted on by
Reply

…comes to the United States, courtesy of the Progressives.

Senators Chuck Schumer (NY) and Bob Casey (PA) are proposing an Ex-PATRIOT Act, which would impose a mandatory 30% tax on American investments for those who renounce their citizenship, and it would prohibit their re-entry into the US.  Moreover, this Progressive law would apply to individuals with a net worth of over $2 million or an average income tax liability of at least $148,000.

Thus it would apply to ordinary small business owners—middle class Americans.  This is a barrier intended solely to prevent Americans from leaving.

A fiscal Berlin Wall.

And they intend to make it retroactive to 10 years ago.  Never mind constitutional injunctions against laws that impact people before they were passed.  That also doesn’t matter to Progressives, because, after all, the Constitution is more than 100 years old, hard to understand, and not binding on anything, anyway.

This is the government Progressives want us to live under for the next four years to forever.

Is Anyone Paying Attention?

Posted on by
Reply

Over in California, we have this:

  • California Controller John Chiang reported that April 2012 tax collections fell short of that state’s government projections by more than 20%—$2.44 billion.
  • Personal income tax payments were below that state’s government (specifically, Governor Jerry Brown’s) projections by 21.5%—$2 billion.

This, and other “estimating” errors have led to a new budget shortfall estimate of $16 billion—up 77% from an estimate of a bit over $9 billion from just four months ago in January.

To solve this shortfall problem, California’s state government is in the middle of a campaign to get voters who still remain in California to raise the taxes they pay: pushing their sales tax to 7.5% from its current 7.25% and pushing their top marginal income-tax rate to 13.3% from 10.3%.

We also have this going on invis-à-vis California:

  • Since 2009, the business departures from California has gone up by a factor of five.
  • Chief Executive magazine’s annual survey of CEOs, carried in the May issue, found California last in business climate of all the states in the union.

If anyone in that government is paying attention, are they capable of understanding?

The Latest “Recovery” Numbers

Posted on by
Reply

First, some numbers via The Wall Street Journal:

  • Commerce Department: 2.2% growth for the first quarter of 2012.
    • down from 3% at the end of last year.
    • close to the 1.7% that all of 2011 had.
  • Recession-created pent up demand for cars and trucks accounted for half of that increase in GDP—1.1%.
    • “Real” growth in GDP, then, was 1.1%.
  • Businesses building up inventories accounted for another 0.6 percentage points of GDP growth.
    • Now we’re down to 0.5% “real” growth.
  • Businesses, over the last six months, have added inventory by more than $120 billion.
    • foretells lower business spending in the nearby future as that expanded inventory needs to be sold off.

As backdrop for all that, our GDP grew on the year by $600 billion, but Federal debt climbed by $1.3 trillion—more than twice GDP growth—in the same period.

Now, about President Obama’s enormous tax increase scheduled to take effect next January.  A worker’s Social Security tax bill will go up by nearly 50% as the payroll tax holiday expires, and his income tax bill will go up drastically: a lower income worker will see his first marginal tax go from 10% to 15% as Obama simply erases that 10% bracket, while a high-income worker will see his top marginal rate run up from 35% to 39.6%.

And this doesn’t include Obama’s tax increases on capital gains and dividends—levied on those rich investors like retired grandma for whom dividend income plays such a major role, and on those middle class investors—the ones whose 401(k)s or whose company-provided pensions invest for dividend and cap gain income.

Imagine the impact on GDP—and on the practical economy in which we must live—of these tax explosions.

A Thought on Taxes

Posted on by
Reply

With a tip of the hat to The Wall Street Journal, and a caution to those who insist on raising our taxes—including doing so only to certain governmentally disfavored groups.

Henry Hazlitt in “Economics in One Lesson,” 1946:

When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only 60 cents of every dollar it gains, and when it cannot offset its years of losses against its years of gains, or cannot do so adequately, its policies are affected. It does not expand its operations, or it expands only those attended with a minimum of risk. . . .

There is a similar effect when personal incomes are taxed 50, 60, 75 and 90 per cent. People begin to ask themselves why they should work six, eight or ten months of the entire year for the government, and only six, four or two months for themselves and their families. If they lose the whole dollar when they lose, but can keep only a dime of it when they win, they decide that it is foolish to take risks with their capital. In addition, the capital available for risk-taking itself shrinks enormously. It is being taxed away before it can be accumulated. In brief, capital to provide new private jobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.

What he said.