It seems there are six or seven categories of incentives: tax policy, regulation, research and development funding, market activity, government services and disbursements. As you’ll see an incentive is just as easily and effectively a disincentive.

Tax policy has been, by far, the most widely used form of incentive mechanism, accounting for $325 billion (45 percent) of all federal expenditures since 1950. Federal tax credits, an accounting method that reduces the tax bill and deductions an accounting method that reduces income subject to tax, have also been utilized lately to encourage the use of renewable energy.  For much more check Management Information Services Inc.

Federally funded regulation and R&D funding, at about 20 percent each, are the second and third largest incentives. Regulation relief or regulation additions are poorly accounted for as the costs or benefits are usually absorbed by private companies and passed on in higher or reduced prices. R&D funding falls primarily into the national university system with a portion going to private companies.

Market activity enjoys or suffers from government intrusion through product taxes, fees, permits and other actions that affect the choices of consumers. Indirect to production, but direct to pricing, these actions can make or destroy a product’s future.

Government services are wide ranging from personal assistance on a single person level to the recently enacted huge bailouts or rescues measured in the trillions of dollars. From welfare to food stamps on to buying the stock of troubled giant insurance companies services are incredibly complex and deeply ingrained into the economy.

Direct disbursements include everything government buys, and it buys a lot. These purchases usually come with strings attached, such as affirmative action, unionized production, and a plethora of conditions to winning a contract to sell to a government agency.

Tax policy “gets to” everyone, as every American with any income of note will have to file a tax information return. Those tax returns are a basis for a wide array of other activities both inside government and privately. The list of activities that require a Social Security Number or Federal Tax ID Number defy counting. That reality plus the huge amount of money involved makes clear why the lobbyists in Washington D.C. number in the tens of thousands. American justifiably gripe and are suspicious of the Congress and the lobbyists about the inside dealing that goes on. Here is a scary thought – imagine there were no lobbyist at all and the 535 Congressional members just did whatever that polling or the media pressured them into doing. With over a trillion dollars on the line every year now, there is no likelihood that tax policy will recede in importance. It should, but the question of immense complexity is how.

Regulation might be the most misunderstood government activity. Most citizens believe that regulation is about protecting them, and a small part of what goes on is just that. But most regulation involves how businesses are run, what investments are required, how people such as employees, management and stockholders are treated and countless other ways to force business to comply with conduct requirements. The good things are compelling treating people and the environment well, and many more. But these regulations are needed not because everyone is bad, but because a few are – so everyone has to comply. The worry comes when regulation seeks to force everyone to a new conduct standard. The second horror is the costs of reporting. Regulations are a two edged sword, worthy of the personal interest of voters.

One of the cleanest government efforts is in R&D funding. Money is disbursed to government agencies researching particular fields, universities gather billions both in their own goals and as contractors for agencies, and some dribbles out to private enterprise. All well and good with two caveats – disbursement regulations (regulations are pervasive!) have become so tight that money misses the intuitive and serendipitous research benefits. Then as we saw a few days ago, black silicon was turned up as an unintended result from a funding for a completely different goal. I am not aware of any “incentive” to find new discoveries in ongoing research – perhaps the most egregious failing of government funding research. These kinds of breakthroughs are being intentionally overlooked in the effort to tighten regulation. As noted before, regulation can be a good thing, but taken too far, regulation is an incalculable disaster of opportunities lost.

Market activity influence is a government activity that is everywhere. From the gas tax hiding in the price of gasoline you can see posted on many gas pumps to the hundreds of billions of hidden costs or benefits in the price of practically everything its unavoidable. The range begins with local or state incentive to attract plants and factories on to requiring utilities to get a percentage of power from renewables. It ends with indirect influences at home with mandates such as eliminating incandescent light bulbs. The incentives and disincentives are deeply ingrained in the economy. Not all are bad nor are all good. Private enterprise probably could not transition to wind power without government participation. Getting a lease for placing a windturbine and putting it up is one thing – getting the power to a customer without the grid in the game wouldn’t happen without government mandates.

Government services are affecting everyone everyday in many ways. From police and firemen, water and sewers to moon shots and military protection services are basic modern necessities. It’s the services in between that get lost and often way out of control. Saving for retirement through Social Security is a grand idea, but it has nothing to do with taking care of oneself, and the price is up to over 15% of most every dollar earned by 95% of us. The growth of our savings through social security is a disaster requiring everyone to save for him or herself anyway or live the twilight years in poverty. The list just grows to medical care, food, housing, adinfinitum if certain political interests get their way. The great political game of giving to get votes is underway again. One wonders when the middle class and poor are one economy and the well to do just leave (monetarily at least) in shear desperation to keep what they’ve gained. Services are a financial trap, set, expanding and closing. Beware if you hope to make a better life for yourself and family, your part in funding services may become a barrier that is insurmountable to your goal.

Government disbursements from major defense contracts to pencils are tools used to affect private business. Popular ways are the conditions to be met for becoming a supplier, special conditions on contracts and over all policies that limit who can participate and increase the taxpayer’s costs. In some instances when very big and not highly technical such as the autofleet, the government allows itself everything from limousines to ultracheap econoboxes. When governments build on real estate they build for centuries, even though the interiors will be updated in a few decades at most. Government sets standards for many products, perhaps too many, as with military contracts that come with specifications, some of which make it to the business sector with good results and others become astonishingly overpriced boondoggles. The U.S. government spends hundreds of billions per year, as the biggest customer for many things its choices and conduct affects everyone in product content, pricing and even availability.

That’s the big ones I could find. With an election coming up one can anticipate what ones choices as a voter might do. With income, food, housing, medical care, retirement, and other parts of life covered by government – and banks, insurance companies, mortgage holders, securities owners and others getting rescued one has to wonder whether working for a productive purpose is losing its allure.

A really old guy said in a conversation years ago that we were hooked on cultural cocaine, a government program for everything, going to anyone, paid for by everyone.

If that appeals to ya, just remember, you won’t be making the decisions on who, what, when, where and how those program benefits get to you.


2 Comments so far

  1. Dan Waldron on October 16, 2008 6:16 AM

    A friend of mine just emailed me one of your articles from a while back. I read that one a few more. Really enjoy your blog. Thanks

  2. The Money Wars What Are Those Government Incentives New | debt solutions on June 15, 2009 5:22 PM

    […] The Money Wars What Are Those Government Incentives New Posted by root 35 minutes ago ( Oct 16 2008 regulations are a two edged sword worthy of the personal interest of voters money is disbursed to government agencies researching particular fields 1 comment so far dan waldron on october 16 2008 6 16 am copyright 2007 new energy and fuel powe Discuss  |  Bury |  News | The Money Wars What Are Those Government Incentives New […]

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