Who Benefits Part I: Profit or Subsidy?

This will initially appear off topic, but please be patient as it is background for something education related.

If you are a corporation declaring a “profit”, how much of that is “profit” and how much is “subsidy”?  The UK has something called working tax credit. Under certain conditions if you work and your employer pays you below a minimum amount, the government will top up your salary with credits. The idea is that people who work should have a living wage. If they don’t, the government steps in and helps with the gap. Who pays for this? Well some way or another it is paid by taxpayers.

Let’s consider a world where a business wants to gain a competitive advantage by lowering labour costs. There is incentive for them to lower wages, let the government pay the difference between what they receive and a living wage and declare a profit. When a “profit” is declared under those circumstances, can it be called “profit” or is it better referred to as “subsidy”?

This circumstance is reality. There are additional benefits given to people with low incomes.  For example, housing benefit (~£24 billion). The system is complex and a new Universal credit is being introduced.  However, for illustration, let’s look at an extreme hypothetical case. Why not have the government pay the entire salary costs (and while we are at it all other costs) and the corporation take all the income going into the business as “profit”? Clearly this would be absurd. At what point does absurdity turn into appropriate behavior?

I don’t have a problem with subsidizing corporations or investing in key industries. The problem for me starts when a business model requires these subsidies to make a “profit”. Similarly, I do not have a problem with supporting people who are out of work or fall on hard times through various forms of subsidy and help. If they were to grow rich from that assistance, it would bother me.

The point here is that a company getting indirect subsidy from the government by requiring the State to take care of their workers should not be in a position to declare a profit. Why is it the taxpayer’s job to take care of their workers for them? Why should a transfer of money take place from the State into corporate profits under these conditions?

No reason at all. A simple solution to this is to restrict salaries to a maximum amount and to only allow a profit to be declared once a company has paid the government for all the benefits given to their employees by the State. For the sake of argument, let’s say the maximum salary in the presence of subsidy can be £100,000. All contracts for amounts greater than that require clearing all State subsidy debts first AND the State get’s its subsidy back before any other creditor.

Extreme perhaps but it highlights the point: where does “profit” begin and “subsidy” stop.  It also indicates who benefits from this type of subsidy. Benefits given to working people do not really benefit those people, they benefit the companies who employ them by allowing them to pay lower wages. If the employer were required to pay appropriate salaries, the benefit would not be required, nor for that matter would the taxes supporting those benefits be needed.

This is a preliminary to trying to understand who benefits from a University education.