26 January 2009

Tax the poor.

When it comes to tax policy, I'm old-fashioned, because I think there should generally be some kind of rational relationship between tax collection and tax expenditures. So, for example, when the government needs to improve interstate highways and bridges, it makes perfect sense to tax car and truck fuel to pay for roads and bridges. 

Not everything that society demands has such a neat relationship. For example, low-income children's programs can't be financed by rich children, nor can they be financed by a tax on diapers and baby food, since those taxes are regressive and take money from the very families that the program intends to help. So we tap the people who have money. Thus, for example, property taxes pay for public education. 

Having gone to the well one too many times on property owners, legislators started taxing "sin" — alcohol, tobacco, and gambling. These taxes have the unfortunate tendency of reinforcing the sanctimony of the abstentious, while excusing them from paying any freight. Win-win for the goody-goodies! 

Of course, that's lose-lose for those who enjoy a martini, a Dunhill, and a few rounds of baccarat. It's a relatively bigger loss for those whose more modest pleasures incline toward a Pabst, a Marlboro, and an instant-win scratch-off ticket.

Tobacco is the current revenue whipping-boy of choice. Politicians convince voters, again and again, that tobacco taxes must be increased to pay for smoker's healthcare burdens. But the reality is that the existing federal tobacco tax burden is adequate to fund those costs, and only a small portion of state tax revenue actually returns to smokers. The rest goes to fund superconducting monkey colliders or other pet projects.

America's got some hellacious budget holes right now, and predictably, Congress is targeting smokers. 

Who will be the beneficiary of this tobacco tax hike? The kids of parents who are too rich to be on welfare, but too poor to afford private health insurance. This is the SCHIP program. It's goals are laudable, but children's healthcare is as much a public responsibility as children's education. 

How do we shift society's aggregate burden on the minority? Disapproval. Disapproval of the filthy, stupid smokers. Those filthy, stupid smokers who have the temerity to use a legal product, and don't have enough power to stop us.

Here's the really amazing aspect to Congress's proposal — the tax hikes range from a merely astonishing 156.4% increase for cigarettes and smokeless to a flabbergasting 6,000% increase for cigars.

Six. Thousand. Percent. 

It will pass (won't someone think of the children!), and our new president will sign it, despite his promise not to raise taxes on those making less than $200,000 a year. I'm not positive, but I believe most smokers make somewhat less than that.

Actually the majority of smokers are considered "low-income." So this tax effectively transfers wealth from low-income folks to benefit middle-income ones. Awesome.

When taxes become punitive, it creates an avoidance incentive. Taxes can be avoided in two ways: tax-evasion, or by no longer participating in the taxed activity. Fewer people are smoking, but tobacco-funded programs are growing exponentially. Know what else is growing exponentially? Tobacco bootlegging. Know what else grows exponentially with bootlegging? Violent crime.

Anyway, when tobacco-tax revenue can no longer support the increasing costs of the multitude of wonderous programs, the government will look elsewhere for that money. All the people who supported those taxes when somebody else was paying them aren't going to be smug for long.

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