Modifying Government Financial Assistance to Businesses

People are constantly complaining about where our tax dollars are going and about taxes being too high. There is an understandable, insatiable thirst for lower taxes. Over the past half century, we have had the pleasant experience of lower and lower taxes. Unfortunately our economy has seen robust times and recessions during the same period.

Republicans advocate tax incentives and subsidies along with lower business taxes. They claim that this form of financial aid for businesses makes government the referee. They claim that tax incentives and tax subsidies are part of the Laissez Faire philosophy. Laissez Faire essentially means government stays out of the affairs of business: no intervention and no regulations.

Republicans and Democrats also advocated the Keynesian theory of economics though they sometimes refuse to admit it. And that theory applies to both methods of stimulating the economy: tax breaks and government programs. Although some people claim both are not the same, both result in lower government revenues during a stubborn recession. Tax breaks affect government revenues in all future recessions as well as the current recession.

Republicans have been complaining about the billions of dollars the TARP program invested in businesses while advocating the trillions of dollars invested in business via tax incentives and tax subsidies. They claim TARP is interfering with business while tax incentives and subsidies make government the referee. They say the US should have let the financial institutions and the auto industry fail.

But their laissez faire policy is applied unevenly and reeks of favoritism. The very tax incentives Republicans favor are those tax incentives that encourage businesses to move operations and jobs overseas while millions of US citizens are out of work. Furthermore the pay back of tax breaks during robust economies is compromised by the additional debt created by those tax breaks during recessions.

At first thought, I advocated all or nothing. Allow bailouts, tax subsidies and tax incentives to help businesses or leave businesses alone to survive or fail. But since then I've given it some thought. And here is my suggestion:

One might call this a modified form of assistance to business. It combines the positive aspects of the bail out with the positive aspects of tax incentives and subsidies. The basic idea is that if we expect to pay lower taxes and still borrow less from foreign nations, then we should allow our government to earn a profit from tax incentives and subsidies, and reserve those funds to aid in the next recession. Convert the tax subsidies and incentives into low interest loans payable sometime after the loans are made. That means that the tax incentive or subsidy must be a finite dollar amount given for a defined period of time. At the end of that period, the business must pay back the loan plus interest before receiving the next tax incentive or subsidy.

We already do this with Welfare. If a Welfare recipient receives a significant sum of money via inheritance, wills or lottery, the State government grabs a good portion of that money. I see nothing wrong with applying the same standards to business.

Some of these opinions were expressed by me in blogs on www.thoughts.com and in comments on Facebook