Taxation and behavior.


If it were totally up to me, I would raise the cigarette tax so high the revenues from it would go to zero.

Michael Bloomberg (As New York Mayor) (I guess Bloomberg understands the Laffer Curve)

The government believes in taxation to alter the behavior of its citizens. Tax law is used to affect individual behavior in many different ways. The latest craze is the taxation of “sugary” beverages. However, cigarette taxation has been with us for many generations. The nation’s first federal cigarette tax was enacted in 1864 as a Civil War revenue measure. The nation’s first state-level cigarette excise tax was enacted in Iowa in 1921.

‘Sin tax’ is defined as a tax on a product that can be harmful to a person, such as cigarettes or sugary drinks. On the other hand, from an economist’s perspective, it’s not enough for something to have negative consequences to justify taxing it. Things like rock climbing and cave diving have potentially markedly negative health consequences. Driving has lots of negative health consequences. The fundamental problem is that there is ample evidence in behavioral economics that document the tendency for people to under weigh distant consequences and over weigh the upfront benefits or costs of doing something.

Why do Democrats favor “progressive” taxation instead of “flat” taxation. They believe it to be fair to poorer Americans. However, their desire to “know what is best for Americans” trumps (no pun intended) their desire for “fairness to poorer Americans.” Cigarette taxes, as it turns out, are highly regressive.

There is a lot of data “on the effectiveness of high excise taxes on behavior.” But that data does not “oppose” the following.

[Principle source: Smoke ‘Em Even If You Can’t Afford ‘Em, by Ethan Epstein]

The professional classes and the more affluent of our citizens long ago gave up the devil’s weed. A Washington Post article that ran last week backed up this observation (again, the Washington Post is hardly a conservative perspective). The nation’s adult smoking rate has fallen to a mere 15 percent. However, 40 percent of those with only a high school equivalent education still smoke. These individuals are among the country’s poorest demographic. Thus, cigarette taxes are highly regressive.

A pack of cigarettes in cities like Chicago and New York now tops $12. Paradoxically, the poorest Americans continue to smoke, while the rich, who can presumably afford the high taxes, have quit the habit. That suggests that demand for cigarettes is quite inelastic among the addicted – addicts will buy cigarettes despite the price. It also shows us that Americans who can afford cigarettes do not smoke for reasons quite distinct from the taxes imposed on cigarettes.

High cigarette taxes are probably healthy for state coffers, but they don’t appear to be making the poorest people in the country any healthier.

The notion of taxing for morality is beyond the proper objectives of taxation. It is a use of force to control citizens. How is it that “progressives” can square this with their “principles?”

Roy Filly

 

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About Roy Filly

Please read my first blog in which I describe myself and my goals.
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