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One of the questions of economics teaches you to ask is ‘compared to what?’ Someone might tell you that a job paying $10 an hour is bad, but any reasonable…
I’m pretty sure that, at some point, you will have heard tax cuts for individuals or businesses, such as those contained in the Tax Cuts and Jobs Act passed in December 2017, as ‘giveaways’ or ‘handouts’ to ‘the rich’ or corporations. As California’s Rep. Barbara Lee put it last week,
“President Trump pushed through a tax scam that gave unprecedented handouts to billionaires and corporations”
To see what nonsense this is, think about what happens when taxes are cut. In 2017, a business, for example, would earn $100 million in revenues. In this simplified example, it would then would pay $38.9 million of that in tax. In 2018, the same business would earn $100 million in revenues. Thanks to the tax cut, it would now pay $25.7 million of that in tax.
Where is the handout? The giveaway? The government hasn’t handed or given this business a cent. Instead it has taken less of the businesses money from it. A tax cut isn’t a ‘giveaway’, it is a ‘take-less-away’.
Who does the income you earn belong to?
This is not mere semantics. The idea that tax cuts are giveaways rests on the notion that all the income we earn belongs to the government in the first instance, and that government then decides how much of that income it will let each of us have. This is a rotten, collectivist idea.
There are real handouts to corporations
This isn’t to say that corporations don’t sometimes get ‘handouts’ or ‘giveaways’ from government.
In December 2008, President Bush approved a bailout plan and gave General Motors and Chrysler $13.4 billion in financing from TARP (Troubled Assets Relief Program) funds, as well as $4 billion to be “withdrawn later”. This literally was a handout to a corporation. It was government handing money over to it, money it had first taken from consumers. These same consumers had been so reluctant to hand over their money to GM willingly that the company’s sales had slumped by 45% in the previous 12 months. So, government took their money and gave it to GM on their behalf.
Tax cuts are not handouts. Handouts are handouts. If you oppose corporate handouts, make sure you’re opposing the right thing.
John Phelan is an economist at the Center of the American Experiment.