If You Want Less of Something, Tax It – If You Want More, Subsidize It

by: the Common Constitutionalist

The bain of the private sector is taxes. Everyone knows this. Taxes lead to less hiring (except for tax accountants and attorneys), less profit and companies are less competitive. And the higher the tax rate, the worse it all becomes.

On the flip side, subsidization can be a boon to the private sector. If your company is lucky enough or connected enough to somehow get your product(s) subsidized, you are assured of more sales. It’s a great deal! By having your product or business subsidized, you can effectively undercut your competition and sell many more units than you otherwise would.

But how does one get their product subsidized, and who would be stupid enough to do such a thing? The answer to the “who” question is the government. State and municipal governments often offer huge tax incentives to lure companies to set up shop. Sometimes the incentives to these companies are zero taxes for a period of time. This is a form of indirect subsidy, allowing the company to lower it’s costs and increase the margin on its products lowering the price of the product(s). The company obviously benefits from a lessened tax burden, and the state or city benefits from increased employment. It’s a win-win.

Then there are federal government subsidies, which are directed to a certain product or industry. These days it’s the “green” industry. Everything “green” or “renewable” is heavily subsidized by the feds. This arrangement is a win-lose. The subsidized never has to reimburse the subsidizer. read more