Conservatives and Republicans get an unfair reputation as being business-friendly. They do take large portions of our income and generously give it to various businesses (generally, donor-friendly businesses), but this is a long distance from honourably garnering the reputation as corporate-friendly.
Every single instance of corporate welfare is defended on the tiresome rhetoric of job creation, rather than stating the true motivation of rewarding donors. The difficulty is that every instance of a government expenditure comes at the inevitable expense of collecting tax revenue.
Tax revenue is money that could have been spent elsewhere. This is money that the individual could have used to pursue their desires rather than the government’s desires. By necessity, the recipients of the untaxed money would have to be providers of those goods or services the individual demands rather than the goods or services the government demands.
These providers lose while recipients of corporate welfare are winners. People that are actually assisting the individual with their ambitions will lose, while people assisting the political ambitions of government officials will win.
Bastiat and Hazlitt said it most clearly, we can see the corporations hire more workers yet we fail to recognize how many additional workers are out of a job due to excessive taxation. We see the construction workers on the bridge, we don’t see those impacted negatively by government action. Economics is the science that forces us to look at the invisible effects of policy on society, not just the visible effects.
It is a truism to state that consumers ought to be choosing the companies that meet the needs of consumers. Conservatives and Liberals, Democrats and Republicans, believe that the government creates jobs. Indeed they do not; they take money from the people — who create the wealth that generates jobs — and these government officials give it to their friends. This ought not to be the case.
The impacts aren’t positive. Donald Trump announced a severe cut to corporate tax, leaving Canada uncompetitive in the business world compared to America. In the long-standing tradition of Liberal arrogance, rather than offering their own tax cut, Canada’s government decided to offer a relief package – they would give $14 billion to companies they deemed worthy of receiving these funds.
In response, the Toronto Stock Exchange had an interesting reply. It dropped in value. The investors were told they were receiving free money from Ottawa and they had less confidence in their companies. No further proof is required that corporate welfare is generally bad for corporations.
The reason why many of them are skeptical is Canada is still in a situation where Justin Trudeau and Bill Morneau are making determinations on the needs of individual business owners, whereas the business owners’ competitors, in other parts of the world – other tax jurisdictions – can make those determinations themselves. When people detached from the situation make decisions, these turn out poorly, when people involved with the decisions are involved with the decision-making process it turns out better.
Corporate welfare is much like all welfare, it eliminates disincentives for bad economic activity. There is an ethical argument for this concerning individuals but the ethical argument disappears concerning corporations. Bad corporations need to be phased out in favour of more productive businesses.
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