About a week back I made a statement in regards to the nature of economic policy. This revolved around the nature of specific policies put forth by governments and their effects on behaviors within the system.
Specifically these comments referred to the nature of taxes and subsidies as relate to our current government’s use of those tools in relation to income and investment in the case of the former, and social welfare as relates to the latter.
Taxes act as dis-incentives in an economy. In other words, they discourage or reduce activity in regards to the thing being taxed. Subsidies on the other hand act as an incentive, encouraging more activity.
My criticism in relation to these facts related to what our government is currently putting the emphasis upon in relation to these two policies. Mainly, our government is focused on taxing income and investment, and subsidizing poverty, inactivity and inability. The question being, what does this say about what government really wants to discourage and encourage in our society?
In retrospect, I need to make one small correction to this assessment. Yes! Welfare, disability and other social-equity ‘payments’ are subsidies. And yes! Subsidies ultimately act as ‘incentives’ on behavior.
But when dealing with those unable or unwilling to earn their own keep, subsidizing that type of (non-) behavior results in a negation of the alternative to that (non-) behavior. “an incentive to not earn an income or invest.”
The end result is that BOTH policies — taxing income and investment and subsidizing ‘not’ earning or investing — equate to the same thing:
A dis-incentive to producing.