Topic: Tax and Budget Policy

The More You Tax, the Less You Get

An article in USA Today notes that big tax hikes on tobacco have dramatically reduced consumption of cigarettes. This is hardly surprising. Indeed, politicians openly state that they want higher tobacco taxes to discourage smoking, and their economic analysis is correct (even if their nanny-state impulses are not).

It is frustrating, though, that the same politicians quickly forget economic analysis when the debate shifts to taxes on work, saving, investment, and entrepreneurship. But just as tobacco consumption fell when taxes rose, it is inevitable that there will be less productive activity if statists in Congress follow through on plans to hike tax rates on capital gains and corporate income:

As Congress weighs the biggest federal cigarette tax hike in history, a
USA TODAY analysis finds that higher state taxes on smokers have produced sharp declines in consumption. The amount of decline in smoking is directly tied to the size of the tax increase, the analysis shows. Cigarette sales fell 18% in North Carolina last year after the tax was raised in two steps to 35 cents from a nickel. The tobacco-growing state resisted higher cigarette taxes until 2005.

Elsewhere: Connecticut has increased its tax to $1.51 from 50 cents per pack in 2002. Since then, per capita consumption of cigarettes has fallen 37%.
New Jersey raised its tax to $2.40 from 80 cents in 2002. Smoking has dropped 35%.

…Thomas Briant, executive director of the National Association of Tobacco Outlets, agrees that consumption will fall about 6% if a $1 federal tax is imposed but says the high tax will have negative effects. State governments will suffer a sharp decline in revenue, and black-market sales and thefts will increase to avoid the draconian tax, he says.

A Lot of Kids Aren’t Alright

The WSJ editorial board looks at recent National Assessment of Educational Progress (NAEP) test scores for American students and sees a glass half full:

Pop quiz: Which has been most important in reducing poverty over time: a) taxes, b) economic growth, c) international trade, or d) government regulation?

We know what our readers would say. But lest you think American young people are slouching toward serfdom, you’ll be pleased to know that 53% of U.S. high school seniors also answered “b.” The latest version of NAEP asked this question, among others on economics, and the results will not please members of the Socialist International, or for that matter the Senate Finance Committee.

Good news, I suppose, considering that our kids are mostly taught by employees of a government monopoly. But 53% is only a bare majority.  Even if you add in the 8% of students who picked trade, you only get to 61% of students giving an answer that’s remotely plausible. 

So here’s the half-empty analysis: Some 38% of high school seniors think either that taxes or government regulation has been the most important factor in reducing poverty over time.

That’s just plain scary.  Add it to the very, very long list of reasons why we need to reform our government-mandated system of government youth indoctrination and support educational freedom through tax credits.

Conservative Big Spending Goes Global

By now it’s old hat that President Bush, who remains inexplicably popular with conservatives, is the biggest spender since LBJ. Now it turns out that the Conservative government elected two years ago in Canada is trying to match him.

John Williamson of the Canadian Taxpayers Federation notes in the National Post that “the Conservatives’ two budgets boosted spending by $24.4 billion over two years.” OK, it’s not Bush’s trillion dollars. But Canada is a smaller country, and “as a result the size of the federal government has grown by 14%.”

It looks like Patrick Basham was all too prescient when he predicted, to much consternation in Canada, that Harper would become “Bush’s new best friend.” 

A Snub for the Dying

On Tuesday, the U.S. Court of Appeals for the D.C. Circuit ruled 8-2 that terminally ill patients who have exhausted all available treatments have no constitutionally protected right to access experimental treatments not yet approved by the federal Food and Drug Administration.  A panel of the D.C. Circuit previously had ruled 2–1 in favor of the terminally ill patients who brought the case, Abigail Alliance for Better Access to Developmental Drugs v. Eschenbach

The Abigail Alliance is named for Abigail Burroughs, who died of head and neck cancer in 2001 after failed attempts to access Erbitux (cetuximab) through the FDA’s existing channels.  (In 2006, the FDA approved Erbitux for treatment of head and neck cancer.)  The Abigail Alliance now represents similarly situated, terminally ill patients who only want one last shot at life.  Eschenbach is commissioner of the FDA.

In an op-ed [$] in today’s Wall Street Journal, my colleague Roger Pilon discusses the tortured legal reasoning that led to the perverse conclusion that terminally ill patients do not have a fundamental right to save their own lives. 

The scientific and economic argument supporting the FDA’s case is that we would get far less information about drug safety and efficacy if terminally ill patients could access unapproved drugs, because there would then be no incentive for patients to participate in the clinical trials that generate such information.  There are a number of problems with this argument, the greatest being that it reduces Abigail Burroughs to a cog in some bureaucrat’s grand machine.

On September 25 from noon to 2pm, the Cato Institute will host a forum on Abigail Alliance for Better Access to Developmental Drugs v. Eschenbach.  Speakers will include Scott Ballenger, lead counsel for the Abigail Alliance; Ezekiel Emanuel, chair of the Department of Bioethics at the National Institutes of Health; and yours truly.  Keep watching Cato@Liberty or the Cato website for further details.

This week’s ruling brought to mind a quote from Mark Twain that appeared in the New York Times on February 28, 1901, and that Mike Tanner and I included in our book Healthy Competition:

The State stands a Gibraltar between me and anybody who insists upon prescribing for my soul what I don’t want to take… . Why shouldn’t I have equal liberty with regard to my body, which is of so much less concern? … Now what I contend is that my body is my own, at least I have always so regarded it. If I do harm through my experimenting with it, it is I who suffer, not the State.

Bureaucrats Run Up $13 Billion Travel Tab

Federal bureaucrats spend as much as $13 billion each year on travel, though that number is just a rough guess since the government is too incompetent to keep track of expenses. It also is no surprise to learn, as reported by the Federal Times, that the federal government has no ability to monitor how the money is being spent.

Gee, one would almost think that there is a lesson to be learned about the likelihood of waste when bureaucrats get to spend other people’s money:

The government knows what it spends on travel but not how. The General Services Administration estimates agencies spend $11 billion to $13 billion a year on business trips, but lacks the ability to say exactly where the money goes.

I Got Hooked on the White Stuff Back in the ’70s

disco-stu.bmpNo, not that white stuff. And not the white stuff that Disco Stu bought from Garth Motherloving. The white stuff I got hooked on (growing up on the family dairy farm) is raw milk — milk that has not been pasteurized or homogenized. Today’s NYT has an article on the growing black and gray markets in raw milk, which the Food and Drug Administration and 15 state legislatures want to shut down.

Yes, that’s right — Uncle Sam and 15 state governments prohibit consumers from buying milk fresh from the cow. And in the nannies’ defense, milk was responsible for much food-borne illness in the era before universal pasteurization. Most consumers likely prefer protection from nasty bugs like E. coli and salmonella.

But others are willing to risk exposure to those illnesses. Some raw milk enthusiasts claim the white stuff is more healthful than processed milk. Others (I count myself among these) say simply that it tastes better that the milk you buy at the store — people who try raw milk for the first time often comment that it tastes more like melted ice cream than the stuff that comes in cartons.

So why should raw milk fans be prohibited from buying the product they want?

That question also underlies Tim’s post, yesterday, about another FDA prohibition — keeping terminally ill patients from accessing experimental medicines. There is no public health issue with these products (my drinking raw milk might make me sick, but it’s not going to make sick the people I interact with on the street). And there is no fraud and abuse issue — these consumers know that they’re buying raw milk; indeed, they want raw milk. Consumers of raw milk (or experimental drugs to fight their cancers or HIV) realize that there is risk to these products but, given their medical conditions and their preferences, they’re willing to bear that risk in exchange for the products’ (possible) benefits.

Government prohibition of the sale of these products is nothing more than bureaucracy’s blanket imposition of its own risk preference on a large, heterogenous population that includes many people with differing preferences. One of the chief virtues of a free market is that it does a far better job of satisfying the heterogenous preferences of a population of consumers than a central planner ever could. Unfortunately, government often intervenes in markets and diminishes that virtue.

As Tim writes in his post, the FDA and its state-level imitators put a happy face on that intervention, claiming they are looking out for the public’s health. But in these cases, why aren’t members of the public permitted to look out after their own health?

Sub-Optimal Tax Cuts in France

Supporters of limited government often say that there is no such thing as a bad tax cut, but it also is true that some tax cuts are better than others (for instance, see here for a comparison of the sub-par 2001 tax cuts and the supply-side 2003 rate reductions). If policy makers want to boost economic performance, they should concentrate on reducing marginal tax rates on additional economic activity. By this standard, the tax cuts advocated by the new French President generally are not well designed. He is seeking to cap the total income tax burden at 50 percent rather than 60 percent, but this change affects the total tax bill and may not have much impact on the decision to engage in additional productive behavior. A better approach would be to lower the top tax rate. Likewise, Sarkozy wants to increase wealth tax exemptions, but this approach is inferior to a rate reduction (or, better yet, repeal of the tax). He also has a gimmicky plan for tax cuts on overtime and a scheme for mortgage payments. The good news is that there will be tax cuts in France. The bad news is that they could have been better designed. Tax-news.com reports

Chief among Sarkozy’s reforms are measures creating more exemptions to France’s wealth tax, which has often been cited as a key reason why France lags behind its competitors in terms of investment and economic growth, and a 50% cap on individual income tax, down from 60%. The reforms would also cut tax on overtime - encouraging more French workers to work beyond the previously politically sacred 35 hour week, part of plans to make the domestic labour market more flexible and business-friendly - and tax cuts on mortgage interest payments. …It is hoped that Sarkozy’s tax and economic reforms will tempt back the hundreds of thousands of French citizens who have left the country seeking less punitive tax regimes. Popular destinations for the estimated 500,000 French tax exiles include Belgium, Switzerland, the UK and the US. …studies show that it is not just the rich and famous who have seemingly grown weary with France’s high taxes, with families and investors fleeing in increasing numbers. Research by French Senator Philippe Marini, cited by Bloomberg, claims that households fleeing the fortune tax have climbed to a record 649 in 2005 from 370 in 1997. Another study by the Economic Analysis Council concluded that approximately 10,000 business directors have fled France in the past 15 years, taking as much as US$137 billion in capital to invest elsewhere.