A Taxing Lie

A long time tool of the control freaks in government is the idea of a "sin tax" excise tax on things that the government deems to be "undesirable" activities.  These taxes are on everything from Popsicles to cigarettes.   Well, the Mercatus Center at George Mason University did a study on sin taxes across the nation and it's findings are not surprising to the libertarian wing of the conservative movement.

Sin is in, and fat is where it’s at — when it comes to taxes.

Aiming to make American consumers break bad habits, governments across the land of the free are levying a wider array of “sin taxes.”

From cigarettes to sex to soft drinks to bacon, specialty taxes are generating tens of billions of dollars, much of it used to plug budget holes and a host of general purpose items.

“It’s kind of the same story we’ve seen with other taxes over time: When they are implemented they can appear somewhat harmless,” said Adam Hoffer, assistant economics professor at the University of Wisconsin-La Crosse and co-author of “Sin Taxes: Size, Growth, and Creation of the Sindustry,” a new study by the Mercatus Center, a free-market research organization at George Mason University....

...“It’s the same thing with income tax; it becomes a lot easier over time to hike them,” Hoffer said.

Emphasis through out is mine.  The problem with sin taxes?  They are the most regressive of all taxes.

Wisconsin, in a tie with Missouri, boasts the highest tax nationally on beer, at 6 cents per gallon, and charges a tax of $2 per gallon on spirits, among the highest liquor taxes in the country.

At $2.52 a pack, Wisconsin has the eighth-highest cigarette tax. Hoffer said the hike turns the World War II-era slogan, “Smoke ‘em if you got ‘em,” on its ear.

Smoke ‘em if you can afford ‘em,” the economist quipped.

The rich tend to not smoke - they have weighed the risk to reward ratio and decided that smoking posed an unacceptable risk.  The poor/middle class on the other hand, feel that the momentary escape that comes from a smoke break is more desirable.  Same thing with alcohol or sodas or.....

But...but....if they can't afford to smoke, they'll quit...the control freaks say,  Well no, not really as the study reports.

And in large part, that’s supposed to be the idea of such sin taxes, particularly taboo tobacco use: Pumping up prices so high that you drive away the buyer and cripple the market. The proceeds, too, are supposed to be marked to cover exorbitant health care costs related to tobacco, alcohol and other sinful products that are crippling the U.S. health care system.

The Mercatus report asserts sin taxes are, for the most part, accomplishing neither. 

The Mercatus report goes into great detail on how cash strapped governments used the taxes to plug budget shortfalls, rather than to pay for the medical costs associated with cigarette use. But I want to get back to the regressive nature of sin taxes....

The Mercatus Center study, however, disputes the efficacy of higher taxes, charging that the vast majority of the poor, the ones hit hardest by the tax, don’t stop using the disfavored product.

“If the goal is to convince people consumption is not a good idea, taxation is not a good route,” Hoffer said. “Most of the people keep paying the higher taxes to buy the product.”

Ultimately, Hoffer said, those spending choices not only hurt the individual but hurt the economy at large. Arguably, the consumer, strapped for cash, puts more of the scant discretionary income he has into cigarette or alcohol consumption.

Or they find ways around the tax as my friend Jazz Shaw noted in his report on the impact of the NY Legislature latest jacking up of the cigarette tax.

With all the nonsense that’s been going on in the Empire State of late – especially the Governor’s successful gun rantings - I’d begun to worry that New York was doomed for mediocrity. But for better or worse, you just can’t keep the government of this state down. If we can’t lead in freedom, prosperity or employment, we can at least be the capital of piracy. (Cigarette smuggling piracy, that is.)

    The Midland, Mich.-based Mackinac Center has released smuggling reports in 2006 and 2009, in addition to its most recent report covering 2011. In 2006, the Mackinac Center estimated that New York had the fifth highest smuggling rate in the country as 35.81%. In 2008, New York’s state excise tax on cigarettes nearly doubled, going from $1.50 to $2.75 per pack. In the Mackinac Center’s 2009 report, New York rose to number two on the list, with a smuggling rate of 47.35%. State excise taxes rose again in 2010, going from $2.75 to the state’s current $4.35. Not surprisingly, the 190% increase in state excise taxes from 2006 through 2011 catapulted New York to its title as the most smuggled state.

But this still leaves a pressing question. Where are all of these smokes coming from? It’s not as if Al Gore’s global warming has suddenly turned New York into a great place to grow tobacco. According to another analysis, the largest (illegal) exporter of cigarettes to the Big Apple was New Hampshire. How could that happen?

    New Hampshire had the highest share of its cigarettes — 26.8 percent — smuggled out of the state. The state cut its tax rate in 2011 by 10 cents to $1.68, still slightly higher than the national average. But it is surrounded by states with much higher tax rates. In Massachusetts, for example, the tax was $2.51 per pack.

And for my "conservative" friends in the Utah legislature - a reality check...

The bigger problem, the study asserts, is that escalating taxes aren’t changing behaviors.

“We all want a healthier population, economic growth and prosperity, but the approach and what the data tell us, the methods we’ve been trying don’t work,” he said.

Taxing a behavior does not stop the behavior.  It only drives it underground (Prohibition) or to another state where the taxes are less.  Rather than try to tax an "undesirable" (to you) behavior, how about just making your case and letting the INDIVIDUAL decide if that action is right for him/her or not and DON'T shield that person from health/economic consequences of that decision? 

Radical thought eh?

Written by LL.