Incentives Do Drive Human Behavior

Rhode Island has an economically unsustainable infrastucture problem, a problem only magnified by a lack of will to face and fix the problem.
In discussing its troubled status, Ed Achorn writes about how There’s no sense in driving out R.I.’s taxpayers and offers these concluding words:

There is one thing everyone should remember: Whatever opinions are offered on these pages, the laws of economics will keep on functioning. However the advocates wish people would behave, humans will keep on responding to incentives. If the politicians persist in hiking taxes, they will keep on driving out wealth creators and pumping up deficits. Just you watch.

As has been said before on this blog, we have two choices: Either deal with economic reality or it will deal harshly and on its own terms with us. The latter outcome will be most painful to those who can least afford it – while many others simply pack up and leave the state. The view from the other side of the Massachusetts-Rhode Island state border looks like an increasingly wise decision, which says more about Rhode Island than it does about Massachusetts.
So, even if you once deeply loved – say, a place like Rhode Island – there is something both sad and liberating about realizing it is possible to let go of years of insane behavior like we see in the state. And if we are honest with ourselves, we realize it is the underlying incentives created by an unbending status quo which gets us to that tipping point of driving changes in our behavior, of packing up and leaving.

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klaus
klaus
14 years ago

I couldn’t agree more that we need to deal with economic reality.
So let’s implement some poliices that will raise the real median wage. This will mean corporations making smaller profits, but I don’t recall businesspersons starving back in the 1960s.
Because that is the real root of the problem: real wages for most people have not gone up since the 70s. In fact, there is a study just out that a 34-yr old man today makes less than his father did in 1974.
Deal with that, and a lot of other problems go away.
Oh–and the Tax Foundation (commie pinkos that they are) published a Special Report about state & local taxes. Guess what? S&L taxes have taken two huge jumps in the past 25 years:
The first in 1984, after round 1 of Reagan’s tax cuts;
The second in 2002, after round 1 of Bush’s tax cuts.
So it looks like the solution to the high state and local taxes might be to repeal all of GWB’s cuts.
And if you don’t agree, please explain away the data I’ve presented.
Yes, I’ve offered it before, but, so far, no one has addressed it. Aren’t you getting really, really sick of me saying that?

Justin Katz
14 years ago

Alright,Klaus. Although I do wish you’d provide links to your sources so that we could more easily discuss them, I’ll grant your data for the sake of argument: After two large federal tax cuts, state and local taxes leaped up. What’s more (although more purely for the sake of argument), I’ll grant your conclusion that supply-side economics don’t work. I can even see how such a dynamic would enrich corporations while creating further impositions for working Americans.
So: Why is it your contention that the presidents are to blame for creating an environment for growth, rather than the state and local governments for ensuring that that environment would be lopsided? In other words, why is the solution for the federal government to tax more, rather than for the state and local governments to tax less?
I reserve the right to “explain away” your data at a later date, but I’ll need you to explain, first, why accepting your data requires me to agree with your conclusions.

SusanD
SusanD
14 years ago

Klaus, whether local, state, federal or corporate, IT’S STILL US PAYING THE TAX.
To harp on revenue and Reagan’s cursed tax cuts is to miss the point. This is an expenditure problem. We have watched our school budgets double and triple over the last twenty years and looked in vain for correspondence of results.
We wouldn’t need to talk about tax increases or taking back tax cuts if our politicians had handed out raises and benefits on the basis of merit and student performance rather than campaign contributions.

SusanD
SusanD
14 years ago

[append: doubled and tripled after inflation.]

Justin Katz
14 years ago

Susan, Klaus’s argument, as I understand it, begins with the belief that teachers (for example) have only been getting the regular increases in pay that every American should get. That is, these increases in spending and the differences in employment packages between private-sector workers and public unionized workers only seem egregious from the perspective of the stagnated private-sector employee. The reason the private-sector incomes have stagnated is that large federal tax cuts have forced (he would say) state and local governments to increase their taxes to cover the gaps that federal money once helped to fill, while free-market policies have enabled large corporations to avoid state remedies by moving to more business-friendly states or sending work overseas. His solution to arresting this trend is to repeal federal tax cuts so that the federal government can increase subsidies to states and towns and corporations (and the rich, I suppose) cannot escape the taxes that states need for the services that they offer. This would allow states to ease up the burden that they place on corporations (essentially, I guess, homogenizing the country). The government would also have to put in place policies that prevent companies from sending jobs overseas. Thus restrained in location and potential workforce, companies would have to restructure in order to pay their employees higher wages, because the workforce would be smaller. They also couldn’t get away from locations, such as Rhode Island, that “need” higher government revenue, so states would have more to redistribute (presumably using some of that money to attract jobs to the state and some of it to create jobs of its own). Now, I’m not positive that this is an accurate summary. If it’s at all close there are myriad issues that I would raise on grounds of principle, practicality, and assumptions of… Read more »

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