Charting Some of Industrial Policy ’s Opportunity Costs

Adam N. Michel andScott LincicomeIn the last few years, Congress has authorized as much as $2.1 trillion in domestic subsidies for preferred industries such as steel, semiconductors, and electric vehicles —a flood of taxpayer cash that supporters havecheered for boosting U.S. manufacturing and the economy more broadly. As Cato scholarsandothers havelongcautioned, however, a  proper assessment of industrial policies’ efficacy requires considering far more than a simple correlation between new government spending and new private investments, jobs, and products. Among the necessary considerations is the spending’s opportunity cost,i.e., what Congress —operating in a world of finite budgets, time, and political capital—could have done with these trillionsinstead of industrial policy.To help clarify that point, we ’ve considered one alternative to U.S. industrial subsidies that Congress could have pursued: improved tax treatment (so‐​called “full expensing”) of companies’ domestic capital investments. As Michel explains in a new Catopaper out this week, current tax law discourages innovation and private investment in the United States by requiring that business tax deductions for spending on research and development, equipment, and construction be spread out over long periods. The 2017 tax law temporarily addressed some of this problem, but as the law now expires, new U.S. investments have again become more costly.Delaying investment deductions erodes the...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs