April 04, 2002
From the desk of Mindles H. Dreck:Sin Taxes
Last night I was storing up links for a behavioral finance post (prospect theory). Among other things, I ran into several links on State Lotteries.
Today on NPR, I hear about Massachusetts raising the cigarette tax again. So, off I go to look at studies on sin taxes in general (I consider lotteries at least a cousin to sin taxes in practice). I was all set to post about how ridiculously dependent our states are on "sin" revenues, and how ironic it is that local governments are sucking the very same teat the tort lawyers are squeezing in every court room in the land.
Then I ran across this World Bank presentation on tobacco taxes (bandwidth required). Holy Ill-Gotten Gains, Batman! Did you realize that Greece gets 9% of its total government revenues from tobacco taxes? Turkey and the Ukraine get 11%.
The arguments in favor, made in this presentation are:
Production, distribution and sales can be closely supervised by the governmentDemand is price-inelastic...
Things that are price-inelastic are typically life necessities (water, emergency healthcare) or addictive. The presentation also points out the regressive nature of the tax, and provides hints on maintaining a monopoly (i.e. avoiding smuggling).
This kind of adds new meaning to the phrase "big government makes me sick".
Incidentally, I don't buy the idea that smokers are paying for their healthcare burden. There is as much evidence that they save us money by dying earlier and not claiming other entitlements. More to come.
Posted by Mindles H. Dreck at April 4, 2002 09:49 PM | Technorati inbound linksI couldn't agree more. Plus, if the idea is to get people to pay for their own health care burdens, the logically solution would seem to be to make everyone pay for the costs of their own health care.
Posted by: Matthew Yglesias on April 5, 2002 06:50 AMMy friends and I always called lotteries the "stupid tax" even when we were buying a ticket. You know you have a better chance of being struck by lightening but you do it anyway.
Posted by: Andrew Ian Dodgeblog on April 5, 2002 07:23 PMI'm a tax accountant (Everybody talks about taxes; I do something about them!) I remember my economics of taxation professor saying that if there was a hook, government would hang a tax on it. (Reagan said it better: If it moves, Congress will try to tax it.)
It's true. Governments tax tobacco, tires, ammo, gasoline, income, etc. because they can. If there is an easy way to measure it, pretty soon it will be taxed. In most cases, there is not a good economic argument as to the why or the amount of a particular levy. The point is to raise as much as possible in little amounts that fly under the taxpayers radar. If we were to pay all of our tax in one monthly bill -- instead of having the tax broken up into thousands of monthly transactions -- taxpayers would rebel. The people running the government know this. And that's the real reason for sin taxes.
Posted by: David Walser on April 6, 2002 01:07 AMComments are Closed.