Rewards, Not Promises: Why People Respond to Incentives, Not Intentions

Quick answer: People and money both move toward whatever is rewarded, not toward whatever was intended. When Maryland raised taxes on its highest earners in 2008 expecting an extra $106 million a year, roughly 2,000 of its 8,000 millionaires left the state within a year, and Maryland lost $257 million in total tax revenue instead. The lesson applies just as directly to your own budget: don't ask what you want your spending or saving habits to be — ask what your current system actually rewards.

Ancient wisdom got here first, even if it didn't use modern language for it: reward what you want more of, and you'll get more of it; reward the wrong thing, and you'll get more of that instead. Economists spent the 20th century re-discovering the same principle with tax returns and spreadsheets.

What actually happened when Maryland taxed its millionaires?

In 2008, Maryland had about 8,000 residents earning $1 million or more a year. Lawmakers proposed a new top tax bracket, projecting an extra $106 million in annual revenue. The policy intended to make the wealthy pay more. What it actually rewarded was leaving.

• Millionaire taxpayers before the change: ~8,000
• Millionaire taxpayers one year later: ~6,000
• Projected new revenue: +$106,000,000/year
• Actual result: –$257,000,000 in total tax revenue

Oregon ran a similar experiment on high earners and saw the same pattern play out over time: billions in projected revenue that never arrived, because the policy rewarded relocation, not compliance.

Why do intentions matter less than incentives?

Because nobody spends someone else's intentions — they respond to their own incentives. A government can intend for high earners to stay and pay more. A high earner responds to what actually happens to their bank balance if they do. The gap between the two is where policies (and personal budgets) quietly fail.

This isn't unique to tax policy. It's the same reason a "we should really start saving more" resolution rarely survives contact with a bank account that makes overspending frictionless and saving an active decision you have to remember to make every month.

What does this mean for your own budget?

Most budgeting advice focuses on intentions: spend less, save more, be disciplined. But a system that relies on willpower alone is competing with the same force that moved 2,000 millionaires out of Maryland — people follow the path of least resistance and the largest visible reward.

The practical fix is to change what your system rewards by default, not what you hope to remember to do:

1. Automate the reward you want. If saving happens automatically on payday, before you see the money, you've rewarded saving by removing the competing option.
2. Audit your current rewards. Look at where your money actually goes each month with the Budget Planner — not where you intended it to go. The gap between the two is your real incentive structure.
3. Make the costly choice visible. Maryland's millionaires could see exactly what the new tax cost them. Make sure you can see exactly what an unplanned purchase costs you — in foregone savings, not just in the price tag.

This article draws on the incentives framework central to Thomas Sowell's Basic Economics — the Maryland and Oregon tax-flight data is publicly reported state revenue history, referenced here for its illustration of incentives over intentions, not as investment or tax advice.

See Where Your Money Actually GoesStop budgeting on intentions. Use our Budget Planner to see what your spending is actually rewarding, month by month.Try the Budget Planner

Once you've mapped your incentives, the next question is what you're giving up for each choice — read Every Choice Has a Cost.