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Economic Definition of subsidy. Offline Version: PDF. Term subsidy Definition: A payment from government to individuals or businesses without any expectations of production. The best way of thinking about a subsidy is as a negative tax.
As you make more income, you get less assistance from the government until, once you reach a certain threshold (it seems to be between 250% and 400% of the federal poverty level depending on your region), the assistance disappears. This is not the same as jumping up into a new tax bracket. The subsidy, in the form of a tax credit â meaning a dollar for dollar reduction in your tax bill â doesnât gradually drift away to nothing. Once youâre a dollar above the limit, POOF, the credit disappears. The difference in costs is stark.