When state lawmakers authorize new programs that spend public money on selective business subsidies, they often call them “incentives.” The programs provide companies with extra cash as an incentive to come to Michigan or expand their business within the state. In general, selective subsidies don’t work. They are expensive, unfair to the businesses that don’t get taxpayer money, and ineffective at creating jobs. Giving them is also an odd twist to a concept that ought to inform policymaking. Lawmakers ought to care about the economic incentives of the broad economic environment more than spending money on subsidies called “incentives.”
Lawmakers can try to influence behavior by spending money, but their laws also change people’s economic incentives. For instance, they use tax policy to manipulate their decisions. They don’t want people to smoke, so they levy high taxes on cigarettes. They also keep incentives in mind when they consider what income tax rates to impose. Income taxes discourage work, but they are not meant to be punitive as much as an attempt to raise revenue. Lawmakers ought to limit the economic harms of taxes by lowering rates when they can afford to do so, and it creates an incentive to earn more.
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