The whole tax system is upside down in terms of incentives.
There should be no tax on income or savings. Tax should be on consumption, not on income. The tax rate on consumption could be progressive, but that is a matter for a separate discussion. Consumption that was purchased with food stamps or welfare checks should be taxed. If one wishes to avoid or reduce the tax, then one delays or reduces consumption, or learns better shopping habits, resulting in increased savings and investments. The entire economy would improve.
One might argue that taxing welfare checks is not productive. But that is easily proved to be false. We would be teaching behaviors which are desired and productive for the individual and society. Teach people to fish, don’t give them fish. Our current system is indeed teaching people, but teaching the wrong behaviors.
Healthcare and other such services should also be taxed as consumption, even if the funds used to pay for the healthcare came from an insurance policy. That would result in a competitive healthcare market. People would shop around for the best doctor/drug/hospital for the money.