Yes, Tax Breaks ARE Subsidies

Many have encountered the claim, typically made by right-wing and especially libertarian commentators, that tax breaks are somehow not subsidies.

As is usually the case when libertarians and other champions of the most hardline economic orthodoxy make such "educational" pronouncements, the assertion is, all at once, utterly contrary to any conventional understanding of economic reality; Olympian in its arrogance and contempt toward anyone who would presume differently; and opaque in its reasoning.

After all, Investopedia, no bastion of left-wing, communistic thought, defines a subsidy as:

a benefit given to an individual, business or institution, usually by the government. It is usually in the form of a cash payment or a tax reduction. The subsidy is typically given to remove some type of burden, and it is often considered to be in the overall interest of the public, given to promote a social good or an economic policy.

Note that "tax reduction" is explicitly included in the definition they provide.

Indeed, one does not find the essentials contested even in the explanation of what a subsidy is provided in the Mises Institute article that seems to usually be at or near the top of the list of search hits on Google when anyone uses it to research the topic, "No, Tax Breaks are Not Subsidies." While the article does charge an "economic and ethical" difference between a cash payment and a tax break (the difference between keeping what you have and being given something taken from someone else), this does not in and of itself make a tax break not a subsidy. In fact, the article acknowledges that "entrepreneurs who take advantage of tax breaks will incur fewer costs than entrepreneurs who don't," and that such breaks are indeed "beneficial to those who claim them"--which is totally in line with the idea that, in conferring advantage to some business at public cost (in this case, forgone tax income, which is shifted to other parties who accordingly bear a greater part of the tax burden, or the burden of forgoing such expenditures), a tax break has the same practical costs and benefits as a subsidy.

So where, one might wonder, is the argument?

The real objection of the piece's author to the term's use in this case appears later, when the article continues with the explanation that government is "not a wealth creator," but only a taker of others' incomes. Because of this such seeming special advantages are really just reprieves from taxation on business that it compares in its various metaphors to a "life jacket in a sea of wealth redistribution," with capitalism only able "to breathe" through such loopholes. Indeed, the web site followed up this piece with another article titled "The Answer to 'Unfair' Tax Breaks is More Tax Breaks."

In short, the "tax breaks are not subsidies" argument assumes that governments have no business taxing business, so that any such taxation is illegitimate (rather than a We-the-people argument for "No taxation without representation" their stance is a pre-1789 French aristocrat's arrogant "No taxes on us, ever!"), and accordingly any respite from such taxation only just, natural, appropriate, and not at all a show of special favor.

None of this is self-evident to most. And when explained to them, most will flatly (and justly) reject the premise of the argument.

Moreover, it will appear the case not only that a subsidy IS a subsidy IS a subsidy, but that, as is so often the case the arrogance and opacity are mere cover for unbelievably shoddy reasoning in the name of the self-serving ideas to which persons and institutions of this type are so prone. Like the claim that one can "never run out of" a given resource, or that involuntary unemployment "cannot exist," an economists' insistence that "tax breaks are not subsidies" is simply a matter of market fundamentalist theologians posing as social scientists, in the way that orthodox economists have been doing for at least a century now; of the staff of right-wing think tanks and the like pretending to be public intellectuals interested in and explaining the actual world rather than PR hacks for the interests that pay their salaries, utilizing theories formed and held without interest in or regard for the real world because they conveniently legitimize their political positions; of the inmates in the asylum insisting that they are really sane while it is everyone else who is crazy.

George Orwell's Nineteen Eighty-Four: A Note

Some time ago a poll in Britain identified George Orwell's Nineteen Eighty-Four as the book that people most often lie about having read.

Naturally the ways in which we hear the book discussed often seem to miss the point. In line with the prejudices fostered by Cold War orthodoxy, they also identify it with socialism--without which the book might not be nearly so widely cited and promoted as it is today.

Alas, the latter conveniently overlooks the fact that Orwell, while an anti-Stalinist, was still a socialist; and what he described in his book was not meant to be thought of as socialism but rather a pseudo-socialism intended to prevent the genuine kind from ever arriving. Put another way, it was intended to preserve the existence of inequality, a power elite, the mechanisms of oppression as ends in themselves. The key tool was the militarization of society--keeping it in a state of perpetual war.

I direct the reader--you know, the one actually reading the book rather than saying they did, to Chapter III of the book-within-a-book that is Emmanuel Goldstein's The Theory and Practice of Collective Oligarchism, "War is Peace." There, as Goldstein observes, the rising productivity of machine-equipped industrialized society was making it possible to eliminate "hunger, overwork, dirt, illiteracy, and disease" before very long, and indeed led to a "vision of a future society unbelievably rich, leisured, orderly, and efficient"--what we call the capital "F" Future of which the flying car is the symbol--"was part of the consciousness of nearly every literate person." Those in power saw that this would spell the end of any need or justification for "human inequality," and indeed, "hierarchical society"--distinction conferred by wealth, and "POWER . . . remained in the hands of a small privileged caste," and this "privileged minority," now functionless, swept away by the well-fed, literate, thinking lower orders who no longer had use for them, and knew it.

Indeed, Goldstein declares that "[i]n the long run, a hierarchical society was only possible on a basis of poverty and ignorance." Deliberate restriction of economic output to prevent this proved politically unworkable (as the post-World War I stagnation and Great Depression proved), but perpetual war afforded an option for "us[ing] up the products of the machine without raising the general standard of living," which indeed was the principal function of the eternal war amongst Oceania, Eurasia and Eastasia. After all, there is nothing like the cry "We're at war!" to make people stomach austerity, deprivation, repression; to make them think the stifling of dissent justified--with even liberal societies seeing war time and again prove the end of progressive hopes.1

This commitment to inequality and oppression for their own sake, and the extremes to which an elite fearful of its position might go to resist a movement toward a more egalitarian order of things; the recognition of how eternal emergency can be an excuse for such a state--these were arguably Orwell's greatest insights, and warnings we have ignored at our very great peril.2

1. Chris Hedges wrote about this in The Death of the Liberal Class. John K. Galbraith wrote about his own experience of this in his A Journey Through Economic Time: A Firsthand View.
2. In the closing essay of his collection On History, Eric Hobsbawm reflects on the sheer bloodiness and brutality of the twentieth century and suggests that it was as horrible as it was because it was, at bottom, a "century of counterrevolution," and no one can be more vicious than the privileged when they feel that their selfishness is threatened.

Review: On History, by Eric Hobsbawm

New York: New Press, 1997, pp. 305.

As the title of his book implies, here historian Eric Hobsbawm is writing less of history here than of historiography. Academic a subject as this may sound, however, this is not a collection of minutely academic articles for ultra-specialists. Over half of the pieces (eleven) are lectures given not in the classroom but at special events at various institutions around the world; two more are conference papers; and two of the pieces originally written for publication were book reviews in non-academic forums--the Times Literary Supplement and the New York Review of Books. It is the case, too, that Hobsbawm is an unfashionably staunch, forceful and persuasive defender of reason and the Enlightenment that he is, and of the value of history and historians as well.

Consequently, despite the methodological emphasis of the book, and the fact that most of his pieces raise more questions than answers, he does not retreat into quasi-metaphysical abstraction, but keeps close to actual practice, with much to say about the investigation of specific historical problems, from social history, history-from-below and urban studies to the historiography of the Russian Revolution. His two-part "Historians and Economists," despite his protestations of being out of his depth in the subject at the start, presents an extremely well-informed and incisive critical intellectual history of the economics profession, and especially its longtime failure to, even disinterest in, grappling with a historical reality that time and again proves the utter worthlessness of their models and their apologia. Despite the methodological emphasis of the book, he does not retreat into quasi-metaphysical abstraction, but keeps close to actual practice, with much to say about the investigation of specific historical problems, from social history, history-from-below and urban studies to the historiography of the Russian Revolution. His two-part "Historians and Economists," despite his protestations of being out of his depth in the subject at the start, presents an extremely well-informed and incisive critical intellectual history of the economics profession, and especially its longtime failure at, and even disinterest in, grappling with a historical reality that time and again demonstrates the utter worthlessness of their models and their apologia (fitting them, as he remarks, for the "dog-collar of the (lay) theologian" (106)).

Of course, more than two decades have passed since the publication of this collection, and even at the time many of the pieces were already a generation old. Still, if in places they show their age by treating old phenomena as if they were new (as when he writes of the arrival of Marxism in the Academy, Walt Whitman Rostow's modernization theory, cliometrics, and the break-up of Yugoslavia), they retain their interest because what is past is not past, and in some cases more present than ever--and often, more pervasive, more dominant, more damaging than before. Certainly this the case with his critique of orthodox economists' pieties, but this goes, too, with what he has to say of other unhealthy tendencies of the late twentieth century, like postmodernism and identity politics. As he memorably writes regarding the latter,

few relativists have the full courage of their convictions, at least when it comes to deciding such questions as whether Hitler's Holocaust took place or not. However, in any case, relativism will not do in history any more than in law courts. Whether the accused in a murder trial is or is not guilty depends on the assessment of old-fashioned positivist evidence . . . Any innocent readers who find themselves in the dock will do well to appeal to it. It is the lawyers for the guilty ones who fall back on postmodern lines of defence (viii).

Indeed, reading Hobsbawm I find myself remembering another book by another great of the past century who "writes of the Enlightenment without a sneer," C. Wright Mills' The Sociological Imagination. Mills was a sociologist who called on social scientists (or "social students?") to be more historically minded, while here Hobsbawm as a historian made a not dissimilar case. Both were entirely right, and that they have been so little heeded has impoverished the lines of inquiry with which they were concerned, and our collective understanding of our own world.