Time and time again we see examples of how well intentioned government legislation and tax policy flat out backfires and results in the exact opposite consequence.
Detailed analysis has been done showing how SUVs emerged as a popular driving option when Corporate Average Fuel Economy (CAFE) standards drove manufacturers to stop making large family station wagons. Some went to minvans, some went to large SUVs like Suburbans.
At the end of the day, the national average MPG actually DROPPED as more buyers migrated over to truck frame-based SUVs exempt from the standard. So rather than drive around in a Griswald wagon with a third seat that got, say 18 MPG, you tooled around in a Suburban getting 14 MPG. I know. I was just such a family.
You can look that one up, as they say, and we have new mandates coming out as we speak. Perhaps some will clean up these unintended consequences, so let's just leave that one alone. It is offered as an example. It has been written up before.
Today I want to discuss one I am watching take place before my very eyes with my 21-year-old son. He is an underemployed kid spending his money in unwise ways the way, well, 21-year-olds spend their money.
And, sadly, he smokes.
Massachusetts, in its infinite wisdom, has chosen to jack the taxes on cigarettes to the point where a pack costs about $8. It was, indeed, a prime motivator for me over the past decade in giving the damn things up. It was too expensive.
But what has happened now is more and more people hooked on these things have migrated to these disgusting little things defined as cigars sold in packs of 20 and costing all of $2 a pack.
These things stink like cigars and likely have the nasty tar and nicotine levels of cigars that are designed NOT to be inhaled.
Only people inhale these things. They cannot finish one, as it is so harsh it makes them sick to their stomach.
So the self-righteous among us piously intone as to the moral wisdom associated with raising money by taxing things we deem socially unacceptable. We can rationalize it as being for the greater good either way. We get money to spend as WE want, or, better yet, people will begin leading their lives in ways in which we want them to lead them.
The argument as to the need to tax the sin products based on greater social ills associated with them remains solidly inconclusive. Sure, drunks and smokers have greater medical ailments, suggesting added cost on the medical system. They also die younger, suggesting elimination of cost on the medical system.
So the taxing of regulated cigarette products pushes lower income bands of the population to less regulated, and therefore less healthy, tobacco products.
Rather like seeking to extract more efficiency out of our transportation vehicles and actually winding up driving people over to other devices that result in the opposite of the intentions.
This is not the tin foil helmeted diatribe of someone seeking to encourage us all to stockpile arms, join a militia and reject our government. Its role is dutifully acknowledged.
But can we simply face facts about social engineering in tax policy and free markets? It does not work terribly well at all UNLESS it merely assigns cost back in an unbiased way.
Telling car companies to drive up average MPG has bias when it exempts this or that device. Big SUVs hit the exemption based on their commercial uses where such large, relatively inefficient things have a role. Simply raising the tax at the core access point at the pump does this.
The goal there is less consumption, right? We do not care how the consumption drops. We just want it to drop. If it is driving less with the same vehicle, or the same driving with a more efficient vehicle, why do we care?
The answer is we shouldn't. That's meddling in the free choices of others. As long as all societal cost has been assigned at the transaction point (as in factored into the per gallon gas price) then let it happen.
Smoking is a personal choice. Bitch about second hand smoke all you want. You can tell'em to not do it in public. Fine.
But start taxing it "for their own good" and you are going to wind up doing the exact opposite.
And I am watching it as my 21-year-old smokes horrendous menthol cigars made in India in increments to get his nicotine level up at a quarter of the cost of doing so with the more heavily regulated delivery mechanism that is the traditional cigarette.
Sin taxes, the most regressive of the taxes often piously advocated by those professing to be the most progressive among us.
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Deven McKay
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Comments
-R-
Parrott: Sure. And it is not government's role.
Oh, and pumps.
BTW, I'm an afficionado of "unintended consequences." My favorite recent headline: "PSAs Against Binge Drinking Increase Binge Drinking."
I'm sure the same is true for the cigarette example.
"Progressive" might apply to those who would restrict freedom for the sake of some social goal, but that also has ample representation in reactionary or conservative form. Prohibition was in no way "progressive." It was quite reactionary, therefore, in the wild world of labels - conservative "moral" social engineering.
The saying -- You can't legislate morality -- used to be common to our politics. We should reintroduce that concept and add -- You can't legislate legal behavior modification. At least not very well in a varied society.
Government can only successfully nudge people towards a long term change of habit by informing. The change takes a few generations, sometimes, or the idea is so tied to current politics that time passes it by.
Either way, there are far more important issues that need addressing. The time wasting social engineering serves to gloss over what isn't being done. The problem is it's what many people consider when they vote.
America has paid a high price for both left and right feelgoodism.
As for tobacco tax, we should long ago gone with Dr. Kessler who wanted as director of FDA to regulate tobacco products as "drug delivery systems" in the same way that hypodermic needles are regulated.
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Sheldon: Bea always liked you in those open toed numbers.
Cranky: Yeah. Any time someone, regardless of left or right squawks, “There ought to be a law!” We should all give pause.
PJ: We agree. My libertarian bent ends at the acknowledgement that government plays an aggregating role in the market for goods and services and as a referee of sorts to assign externalities back into the market. Simplest example would be the paper mill polluting a river. Cheap for the paper company and buyers of the paper, expensive for towns downstream. So government has every right – indeed responsibility – to assign that cost to the manufacturer and buyer of the paper. Gas taxes are the same way for pollution, roads, etc. You get into very, very gray areas around things likely deemed undersireable such as smoking or what have you.
Max: The come to Jesus talks happen. Remember Mark Twain, though, when he muttered, “I left home when I was 17 and came home when I was 21. I was amazed at how much my father had learned while I was away.” The boy is a slow learner.
Walter: That whole SUV thing is a confluence of issues. None purposeful to creating the market niche, and it made sense to exempt truck frames as commerce/farming/and the like need these things, and what does one do for multipurpose vehicles? If people want them, they are going to get them. Markets build what people want.
Ablonde: All discussed.
Kanuk: Yep. Government actions are like rocks in front of moving water. The water ultimately flows around them forming different fissures, markets, etal. So there are no more Crown Victoria Station Wagons. Now we have large SUVs instead. We may not have liked the Vic wagon, but it was better. We may not like butts, but they are better than cigars made in India.
Parrot: Shit happens.
Joan: I would argue it is a little more than that. It is unpopular to simply come forward and advocate tax increases. So fee-based methods come forward. Sin taxes get advocated because they are on negative social actions (smoking, alcoholism) and can be justified either as a behavioral deterrent OR as a justification that the money is necessary because of the costs associated thereto. MA has an additional difficulty in that when the citizen referendum to repeal the Dukakis Surcharge that had income taxes at 5.95% back to the original 5.0% passed, legislators balked. They rolled it back only to 5.3% and also added an option that stated people could voluntarily pay the higher tax rate of 5.95%. Fewer than about 400 filers do that per year in the entire state. (Ask Barnicle about it.) As such, it is incredibly difficult, if not impossible for any legislator to come forward advocating tax increases, as a Freedom of Information request will be filed for the returns to see if they have been paying the higher rate. It was a rather impetuous and pious act that has hamstrung those wishing to raise tax receipts.
We also had a 1995 Ford Taurus Wagon with the fold-up third seat. Could haul eight people. Got around 25 MPG.
I don't understand why those were not more popular options than the SUVs.
{[R]}
Weak sin taxes may not work or work very well. Strong sin taxes do work :
http://www.upi.com/Health_News/2010/02/25/Study-Food-sin-taxes-effective/UPI-60061267154775/
Hate regulation? Really? In this day and age? Did you miss the banking crisis? Try reading 13 Bankers or The Big Short, that'll cure ya.
Or just recall the regulation imposed which mandated air bags go in cars, over the objections of the industry which insisted such regulation would destroy the American auto industry?
In fact what was going to destroy the auto industry was their lousy cars and grotesque executive incentives and compensation.
It's an old set of ideas which animated the Reagan administration and the people who were young then: taxes are "burdensome" (to whom?) and that "free markets" are all that's needed to produce all and only good outcomes and that by making the rich richer, the money will "trickle down" to the other 96% of the population. Not one of those ideas has borne anything but the poison fruit they were designed to bear. As a set of ideas that anyone outside of the Chicago School and the Cato cretins takes seriously, they've been completely abandoned by economic academics.
Strong sin taxes work. The sound of the howls from the sinners is all you need to understand that. If some individuals are dodging the sin taxes to some shelter you have to first ask if the sin tax is working in the aggregate. If sheltering actually is shown to be so widespread that the overall effectiveness of the sin tax is compromised, then it's time to tax the shelter too.
In what other area of human endeavor - chemistry, physics, biology , medicine, and mathematics- is experimentation forbidden and stellar results demanded on the first attempt upon pain of the whole enterprise being scrapped?
That's what libertarians and "don't tax on me" Republicans require of every sin tax and every effort at social good through government action.
Their favorite technique is just what we've seen over this past year with health care- what you can't stop, cripple so badly it can't work, then point to the resulting failure of results to indict the very conception that government can do good in the first place.
Reality requires more subtle thinking that Ayn Randian libertarians and Republicans can muster. Specifically, you have to try many things in succession at each iteration improving and tweaking the process until the desired outcome is reached. That's how all knowledge and engineering is done. The whole process is made infinitely harder when you're set upon by the jackals of ill-will and greed who only want to see you fail so the rich will be left alone to get richer.
There is no such thing as a "free" market. The cost of your driving your SUV gets passed along
Your compare and contrast with CAFE standards cuts no ice with me. The fight against CAFE standards resulted in other carmakers from the Pacific rim and Europe owning a larger share of the U.S. market. Had Detroit channeled their lobbying money into R&D we might be driving vehicles made by US based manufacturers instead of foreign owned firms.
There is moral argument to make against this kind of taxation. This tax is exploiting a segment of population the based on their addiction to tobacco. Is taxing an addiction a moral act for a government to do? I would prefer having a discussion about that than your knee-jerk government interventionist argument.
Having paid for the privilege of living in Massachusetts, there's lots wrong with the entrenched government of corrupt Democrats who control the legislature. Taxing tobacco is miniscule in comparison to the other stupid stuff they do. Rated my friend.
It is clear that higher taxes have reduced smoking, lowered alcohol consumption and created revenue streams to fund rehabs and smoking cessation studies that have helped find way to get people to stop smoking.
You smoking while your son was growing up has more to do with his problems than the government, which you seem to want to blame for your failure as a Father to do the right thing as many of us did.
I quit smoking and drinking before my kids were born, they have tried this and that along the way but as young adults they have my example to look back on and no government to blame.
One is that people's 'free market' choices are often NOT rational.
The SUV case is a perfect example of this. Favorable tax treatment for SUVs was in place *decades* prior to the SUV boom. It took a confluence of factors to make them popular, including...
'Rational factors':
--Favorable emissions control and safety standards
--Municipalities not enforcing GVRW limits (e.g. your typical Hummer couldn't drive in Beverly Hills if the 3-ton weight limit on local roads was enforced)
--Japanese manufacturers dodging the 25% import tariff on "light trucks" by making 4-seat 'passenger vehicles' (Of course, same manufacturers claimed they were 'light trucks' for emission and safety standard purposes...;-D..)
--The collapse of oil prices in the 1990s following the Persian Gulf War.
--Government/society's insistence that children ride in child safety seats, making larger cars more desirable.
Irrational factors:
--The rise in narcissism and status anxiety among Gen-Xers ("I can't drive a minivan. That's a 'mommy' car!")
--Hollywood celebrities adopting SUVs as status symbols. Recall Arnold Schwarzennger's (sp?) high publicized acquisition of one of the first civilian Hummers. Similarly, big shot Hollywood producers starting buying Land Rovers to give to high-profile actors as thank-you gifts.
--A shift in vehicle buyers desires from style and performance to size and perceived safety. This was simply trading one set of non-rational desires to another set of non-rational desires.
Ultimately, the SUV boom had far more to do with fashion trends than tax policy.
The other major point this analysis misses is the role of entrenched anti-tax bias in our politics. People hate taxes to the point of irrationality, and politicians will do whatever they can to raise revenue while avoiding the voters' wrath.
'Sin' taxes are a great way to do this. Cigarette smokers are not an organized political faction. Nor are alcohol drinkers. Nor are traffic law violators. Nor are tanning bed users.
In contrast, auto makers and oil companies are *very* organized, *very* wealthy, and *very* politically active.
So, when your typical politician is looking for revenue who is he going to tax: the petroleum industry that provides a large share of his campaign funding....or the 24-year-old nicotine addict?
'Nuff said!
r
Maureen: You’re welcome. Thanks for stopping by.
Leepin: I think they are about $5.50 in NH. Border stores sell out as fast as they get them in.
SWV: Lots of venom being hissed onto strawmen, and not a lot of intellectual respect being accorded opposing viewpoints. I did not say I stopped smoking SOLELY because of sin taxes. I did not go into my history of quitting over the years. I had resumed, knew I wanted to quit again, had it on the radar, and did it about 3 weeks after the tax hit came on as I just shook my head at the continued ridiculousness of it. The sin tax in and of itself was not the sole determinant.
Furthermore, your diatribe about taxes as evil misses the core point of the discussion around cars whereby I was advocating taxes rather than social policy legislation. Tax gas and let markets and consumers decided how they will accommodate government’s VALID ROLE to assign taxes in efforts to protect the commons. The central distinction here is between accounting for hidden costs – protecting the commons – and legislating desired outcomes that can otherwise be worked around. You can’t work around paying the cost of gas consumption and its attendant impact on the commons if you tax it at the transaction point. Period.
OE: You have to delve into that history. It redlined the top end family transport vehicle. Large families needed something else. Truck exemptions were there MORE for agriculture and the like, so 6,000 pounds and up was exempted. Hence SUVs built around that exemption to then NOT be factored into the CAFÉ calculations. I will gladly PM exchange around this one, as it is a well documented component.
The problem was, they were not as fashionable, nor were they marketed like the SUVs were. (When we bought the wagon, a lot of people didn't know that Ford still MADE a station wagon.)
The impetus driving that shift was when CAFE standards increased up into the mid 20s, and large wagons getting 18 mpg were dragging down the average. So those cars were mothballed and replaced by truck based alternatives not counted in the CAFE calculation. Those wagons were NOT discontinued due to lack of consumer demand. It was due to CAFE incrementalism, or public policy making designed to reduce energy consumption. A far simpler device would have been higher gas taxes rather than convoluted mandates designed to do the same thing that distorted the market in very unpredictable ways.
The average American family only has two children, however, not four or six or ten. Yet look at how many small families go for the SUV when they could probably get by with a Camry and could certainly get by with a wagon.
For large families, now that most kids are required to be in some sort of car seat almost until they enter school (and sometimes later), I'm not sure that even the giant land yachts would work. Remember that back in the 1960s and early 1970s, infant car seats were a rarity and older kids just sat in the regular seats well into the 1980s. (I never sat in any special carseat past my second birthday, because it was needed for my brother.)
My grandparents had a 74 or 76 Buick Electra and as big as that thing was I'm still not sure that you could fit two car seats and a third child in the backseat of that thing.
Price is the market clearing mechanism. Markets are amoral, and government assigns the costs to that market akin to a referee.
And legislating those taxes would be immensely easier if fools stopped electing politicians like McConnell of KY and Helms and Burr of NC who were/are bought and paid for by the tobacco industry.
Govt has a legitimate role in forcing corporations to do what they ought to do out of moral compunction -- but won't because moral compunction is a fantasy in the face of profit motive -- ask the parents of the kids who died in the infamous Pinto fires. We have all benefitted from govt enfored regulations -- or are you suggesting mandated safety innovations like seat belts and air bags are a bad thing?
And let's not get sidetracked in a semantic debate about whether govt mandated safety features innovations like these are "taxes" -- they are, and they add significantly to the cost of a new vehicle -- they also save lives.
We can argue about whether the lives saved are worth the cost, but I'm sure if one of your children were involved in an accident in which govt mandated regulations saved their life -- as my son's was -- you'd see this differently. Even those who subscribe to the evil notion that the "nanny society" neutralizes chlorine in the gene pool, should keep in mind that "defective people" too often take someone with them. Pray that you or your child aren't among the "collateral damage".
It's a straw man argument, Tom.
These behemoths were marketed to feed the fragile egos of wealthy men and to assuage the fears of their pampered wives - tho ironically, driving and "off-road" vehicle on the highway greatly increased the drives chance of a roll-over accident.
I'm reminded of the joke about the guy who decided the best place to hand out flyers for his penis enlargement product was at the Hummer dealership.
1) The 6,000 cut off was deemed a reasonable exemption for trucks and other things used in COMMERCE rather than in basic transportation.
2) Years later, as the CAFE standards kicked in and there was a need to mothball large FAMILY transport vehicles, it pushed consumers to look for alternatives, and some went for that alternative.
That's the whole point of the exercise, Tom. Gov't had a good intention, drive fuel efficiency. Rather than tax the hell out of gas which would have let the economizing measures be personal choices, it sought to dictate an outcome, and the market moved around it, spawning SUVs. Customers took the first step there, because they rejected the alternatives offered, which were Taurus wagons and equivalents that were not big enough for those with more than 2 kids and maybe a couple pets to transport around with said critters. (4 kids, a shepherd/akita mutt, and a Jack Russell in this quadrant.)
Congress did eventually address the behemoth loophole -- tho it could have been much more easily addressed at the state level by requiring commercial vehicle plates and a CDL license to pilot one of those 6,000+# barges. So much for "leave it to the states".
As for your argument, I'd give it a lot more weight save for the fact that 99% of those behemoth SUVs (99% of which never left the road) had one -- and only one -- botoxed beauty behind the wheel during 99% of the miles driven (actual mileage may vary but will be well within the range of making my point).
So that was the thinking back in the mid 197os when the Cafe standards were established with the phased in triggers for higher and higher mileage bogies.
It was not until the early 1990s that the standards got to the point where they stopped making the large wagons as a way to shift fleet mix to hit the economy standard.
And consumers migrated over to the behemoths that had previously been utilized PRIMARILY as large crew transports to oil rigs and the like (as well as for the horse crowd that was a very NARROW piece of the pie.)
With Crown Vic, Pontiac Safarai, Buick Electric, and Chevy Caprice wagons no longer made, the large families started pulling them in custom allotments.
The business exemption thing did not hit until the rule 169 about being able to expense in one year depreciable items had the figure uplifted to $25K from $10K or $15K. (I know, I used it for business office equipment.) Then you had 6,000 pound vehicles bought on businesses, depreciated in one year, and then used for personal use.
The loophole still exists.
But it does not take much to get up over 6,000 pounds. F150s get there no problem. My 1999 F-150 long bed x-tra cab hit it with no adders. The Honda Ridgeline hits it with a heavy duty tow bar mounted on it.
Keep railing away all you want, but these are not evil plans designed to screw the little guy. These are natural market forces working around convoluted, overlapping government regulations that were not at all connected to one another, but, when applied together can make for some interesting activities.
Business machinery ought not be lumped in with consumer transportation.
Business had an allowance to expense in one year what should be depreciated. It was not indexed to inflation. It ultimately got increased such that it could cover the cost of a 6,000 pound SUV. (In my case a used F-150 Crew Cab to replace the 94 Suburban I bought when we outgrew the Explorer after my purchased used Electra Estate Wagon needed to be replaced and they had been discontinued to help hit the CAFE standard.)
What you are illustrating, however, is what policy proponents hope for. Implement a set of laws with delayed impositions in hopes the public will not make the connection. The 1990s mothballing of big cars was the result of 1970s timetables.
Sometime in what? 2016 is it? We will have similar measures around healthcare, right?
As I said, the problem isn't the tax on cigarettes; it's that so far, at least, a sufficient tax hasn't been levied on the Tobacco Candy products unscrupulous tobacco companies created to circumvent reasonable taxes on cigarettes. There is no excuse for that -- other than the fact some legislators are still bought off by Big Tobacco.
You may argue for one's right to poison oneself, and you may argue that these are victimless "crimes", but given the social cost of tobacco products, such arguments can’t stand even a cursory examination. And I surely wouldn't try to make such an argument to the spouse or the children of someone who has suffered miserably and expensively over the last 10 to 15 years of their life because of their "choices".
In case you can’t tell, this is a personal hot button for me. I watched my own father suffer the incredibly deleterious effects of his choices for thirty years, and it was not a pretty sight. He wasn't the only victim, so was every member of his family.
In fact, the whole notion of choice is highly debatable, given the pervasiveness and persuasiveness of cigarette advertising over much of the last century. But whatever the case with an individual, manufacturers should not have the choice to addict customers – especially children -- to their product.
If you think I'm over the top with this, take a look at the Kentucky Tobacco and Candy Association, one of the delightful organizations exercising is First Amendment right to express itself as a "corporate person" for the purpose of poisoning our children -- including your son. After all the boilerplate about "freedom" and "choice", their website gets down and dirty:
"Our main goal is to band together to fight increases in cigarette and tobacco taxes as well as any legislation that affects our membership."
You say "Keep railing away all you want, but these are not evil plans designed to screw the little guy", I wholeheartedly disagree. Given the demographics of smokers these days, primarily the blue-collar poor, one could make a reasonable argument that this is a highly-effective -- if incredibly expensive -- form of "ethnic cleansing".
If you think that’s hyperbole, let me remind you of the documents that came to light in the Pinto lawsuits. They showed Ford conducted an internal “cost/benefit analysis” that made it clear kids your son’s age would be burned alive in accidents involving Pintos, but since these would mostly be poor kids, it would be cheaper to settle lawsuits than to spend $7 to prevent the fires.
No Ford executive is rotting in prison as a result of such an absolute evil decision, but somebody sure as hell ought to be. But until such time as the worst excesses of crapitalism run amok are treated as real crimes, we will have to live with the fact that men like these will make decisions like these and circumvent the law, not matter how the law is framed.
But surely after the events of the last thirty years, you can't believe the answer is to simply let these corporate monsters have their way with us.
Sin taxes are just taxes. They are designed to extract more money from the people. The reason they are popular is because they are sneaky. The none smokers don't care if the smokers pay more taxes. The non drinkers don't care if the drinkers pay more taxes. Those who live in urban areas with mass transit don't care if they tax gas, tires, etc. If you raise everyone's taxes people bitch. But, raise it here and there segment by segment and no one notices. Until they tax your segment, but since you did not speak out against the others they will not speak out against your new tax. Bottom line add all the taxes together on gas, pop, sales, property, state, federal, luxery, cell phones, internet, utilities, etc. and the average person pays 40-50% of their income to the government.
Are you getting your money's worth?
Thats an idea both liberals and conservatives should be able to get behind.
Sometimes the morality taxers try to justify what they do by creating whacked out estimates of the "social cost" of the items they're taxing. With SUVs they can play with costs of air pollution, drilling, accident victims, and even global warming. With smoking they use a computer program called SAMMEC (Smoking Attributable Morbidity, Mortality, and Economic Costs).
Of course SAMMEC gives wildly inflated numbers because that's what's wanted and it's easy as pie to simply adjust the formulas. To see a good criticism of this sort of tomfoolery read my "Taxes, Social Costs, and the MSA" at:
http://pasan.thetruthisalie.com/modules.php?name=News&file=article&sid=7
and you'll see how even the much lower smoking tax rates of ten or twenty years ago were already covering the health costs of not only smokers, but NONsmokers as well!
Also: something I don't think Gwool touched on: when you raise taxes to criminal levels you create a criminal market. It's a helluva lot easier for 14 year olds to get smokes today than it was ten years ago simply because the guy in the alleyway selling $4 packs of blackmarket Marlboros isn't really all that worried about violating age laws. The Antismokers know this but you'll never see them mention it: after all, they need those taxes coming in to meet their payrolls.
Michael J. McFadden,
Author of "Dissecting Antismokers' Brains"