Politicians and political advocates seem to suffer from a certain inconsistency on the topic of whether economic incentives can impact behavior. Most of the inconsistency is displayed by liberals, but conservatives are occasionally guilty, as well. Miraculously, they all seem to believe in incentives when the proposed incentive fits their political agenda.
Conservatives are convinced that lower marginal income tax rates will encourage people to work harder and create more jobs. Yet, they seem oblivious to the fact that having more favorable tax rates for investment earnings not only encourages people to invest but also to put effort into receiving their income in a form that is subject to lower taxes. Hedge fund managers receiving what is clearly their pay in the form of lightly-taxed carried interest is an example of such behavior.
On the subjects of taxes, liberals show inconsistency of the highest level. While liberals repeatedly claim that higher marginal income taxes on high earners will not discourage hard work and innovation, they are simultaneously convinced that taxes can discourage other activities of which they disapprove.
Liberals believe that higher gas, carbon, and cigarette taxes will all make people consume less of those items. They even believe that a one cent per ounce tax on sugary beverages could make a worthwhile impact on our epidemic of obesity...However, an inconsistency that the liberals cannot escape is on the minimum wage. Raising the minimum wage is a tax on labor hired by businesses (it raises the cost of the good—labor—with no resultant improvement in that good). Yet, liberals firmly believe that the government can increase the minimum wage, by 40 percent or more, without causing an increase in unemployment. Yet if businesses buy less labor when it is taxed more, unemployment would surely rise.
(via Mark Perry)
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