Posts Tagged ‘tax incentives’

A knock I hear frequently about electric vehicles (EVs) is that they require government subsidies to sell well rather than letting the “free market” decide. I’m assuming “free market” refers to dealer network and government collusion and externality benefits of petrol fueled vehicles. However, I usually have to distinguish between a tax credit (which is NOT a subsidy) and a tax rebate (which is a subsidy). The federal tax credit afforded to EV owners is often (incorrectly) labeled a “subsidy” by anti-EV folks. However, the federal tax credit for an EV purchase is limited to the buyer’s federal tax burden.

If you have no federal taxes, Uncle Sam does not cut you a check for $7,500. If you only have $5,000 federal taxes owed at the end of the year, you also don’t get a $2,500; you just don’t have to pay the $5,000 in federal taxes. In short, it’s you keeping more of your own money (which is why it’s called a tax incentive) rather than you getting someone else’s money (which is why it’s NOT a subsidy).

State issued tax rebates are subsidies. Not having to pay for the health problems caused by driving a petrol powered car is a subsidy.

Tax Cuts are so fashionable right now. Apparently, they are needed to create jobs because they (tax cuts) have proven to be so effective with creating jobs over the last 10 years. At least, that’s what we here about the tax cuts for $250K+ folks. Then on the sub $250K folks, the tax cuts are deemed as a “stimulus” because apparently they have stimulated our economy so well over the last 10 years. Stimulated us into mountains of debt is all I can really think of.

There are also those, like a commenter on one of my blogs about QE2 who think that tax cuts are tax incentives. It was a playful back and forth with Ben, and I hope that he’s reading up on his economic theory so we can have a legitimate debate about the failed logic of QE2. The logic is not just failed, but extremely dangerous. Which leads me to the topic of this blog: tax incentives. To further illustrate outside the box thinking as well as make clear that tax cuts are NOT tax cuts, I’ve come up with a really good tax incentives that would definitely “stimulate” the economy:

Make the purchase of Federal Bonds completely tax deductible. I’m not talking about the interest here. I’m talking about the actual money paid for the Federal Bonds. If you pay out $1,000,000 for Federal Bonds, you get to deduct a million bucks from your taxes. This would make the purchase of US Bonds by Americans significantly more attractive than they are right now.

The Federal government can even keep taxing the interest if they want, but the ability to write off what you are loaning the government would provide a massive incentive to investors. Plus, it’s not like the Federal government is not collecting the money. Should it care whether it  gets the money from taxes or from Bond sales?One might argue that right now they are getting both taxes and the purchases of Bonds. Well, that is true in the sense that the Federal Reserve just printed more money to purchase more Bonds. However, with this idea, it would be the American taxpayer ONLY who would realize the real benefit of this offering. It would provide a huge tax incentive to any taxpayer (individual or corporation) to lend our government money. The proceeds of Bond sales would go up significantly.

This is Democrat, Republican, and Tea Party proof. Going with typical stereotypes of each political party: The Dems get money to spend. The Republicans get lower taxes. The Tea Party gets less Federal Reserve! It’s a win, win, win!