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Need help: Tax deduction vs. subsidies - real difference?

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garthranzz Donating Member (983 posts) Send PM | Profile | Ignore Sat Jul-17-10 11:14 PM
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Need help: Tax deduction vs. subsidies - real difference?

In a discussion today about solar vs. oil, someone argued that Big Oil is "subsidized" by the government. Someone else said no, that the tax credits/reductions/whatever for drilling/exploration are different. Subsidies you get regardless, tax deductions is only what you would have paid had you made a profit.

Something didn't ring right about this. On the surface, yes, tax deductions are different than a government subsidy. But every instinct tells me Big Oil is getting subsidized by the government, whether it's a "tax deduction" or credit or something else.

Anyone with any economic or tax-based expertise can help me out? Or point me to a reliable source that can explain all this?

Thanks in advance.
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Travis_0004 Donating Member (417 posts) Send PM | Profile | Ignore Sat Jul-17-10 11:28 PM
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1. A subsidy is usually paid directly by the government
and a tax break is paid by the person, but the two terms are sometimes used interchangeably.

I'm in school. I get a subsidy in the form of a very small grant. I never see the money, I never have to pay that portion of the bill. Its automatically paid for by the government.

I also get a tax break. I need to pay tuition up front, then when its time to process my taxes, I get a tax break.

If people don't have the money up front, then a subsidisy is the best action, since they can't be expected to pay the money up front.

Tax breaks are good for the government since some people may not claim every tax break, if they miss it, plus, the government doesn't have to pay it out right away. They wait until you file your taxes, so they can earn interest on your money. Also, I would imagine a Tax break is easier to monitor and cheaper, since the IRS already has a system in place to audit and process tax returns.
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alc Donating Member (649 posts) Send PM | Profile | Ignore Sun Jul-18-10 06:32 AM
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2. need a profit for a tax deduction
Say I make an electric version of a $20K car but need to sell it for $50k. I probably won't make a profit because not many people will buy it so no tax deduction will help me. But if government subsidies allow me to sell it for $25-$30k I can probably sell some.
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old mark Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Jul-18-10 06:41 AM
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3. Subsidiea may be in the form of price supports - a minimum guaranteed income
for owners of production companies or agri-business, such as the oil companies. Some farms are also paid NOT to grow specific crops...


mark
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mmonk Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Jul-18-10 06:47 AM
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4. They get subsidies to drill and for exploration.
They get tax credits and less subsidies for alternative energy. They, of course, act on the more money they get. They are still building the Model A Ford with the help of paid for politicians. America will never lead in moving to a more modern cutting edge energy policy in the world.
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