What is a “Tax Hike?”

I’m a pretty cynical guy when it comes to special interests and their desire to obtain a “free lunch” for themselves at taxpayers’ expense. So, rarely do things I read in the newspapers shock me. But, something said by film union flack John Hendry nearly made me fall out of my chair. He said, in reference to the latest report showing that the state’s massive subsidies for the film industry are an economic dead-end, that curtailing the industry’s subsidies “would amount to a tax hike.”

Clearly, what we have here is a failure to communicate. A tax hike is NOT a reduction in the amount of subsidy you receive from taxpayers (25 cents on the dollar in the case of the film industry). A tax hike is governments’ taking more of someone’s money than they previously did. See this recent post on combined reporting which is a genuine tax hike.

The film industry did not own or produce the 25 cents they are getting from taxpayers. Those who earned it did. Eliminating that giveaway would NOT raise taxes. Hendry is just plain wrong and either doesn’t understand the term or is making things up.

There is the grey area of traditional tax credits and other incentives that are also being debated (legitimately as we face a massive deficit). Good tax policy is flat, fair, and simple. Tax incentives tend to be focused narrowly at politically-powerful groups. Eliminating some of them may be a net tax increase, but reducing such special interest breaks can contribute to good, long-term tax policy.

Ultimately, what we own belongs to us. When government takes more of it than it did before, that is a tax increase. If we don’t set the terms of the debate at the outset, we’ll never get anywhere (and maybe that is their point).