The editorial boards of the Fort Wayne Journal Gazette and the Marion Chronicle Tribune have advice for the Governor and General Assembly with respect to taxation today. The Chronicle Tribune opposes the cigarette tax increase proposed by the Governor. The editors feel that it’s wrong to tax a behavior simply because it’s undesirable. The government should ban the behavior if it’s bad enough but taxing the behavior is apparently beyond the pale. The Chronicle Tribune opines that if we’re going to have taxes (conceding, almost reluctantly, that some are necessary), the money from them should be used for something related to the thing being taxed. They mention the gas tax as a means of paying for roads, which makes sense. But then they go too far. “Otherwise, [if the money from taxes is used for something unrelated to the thing being taxed], it’s just the government going after our wallets.” (You can tell where the hearts of the editorial board are by the taxes they list as other taxes that just go after our wallets: property taxes, capital gains taxes, and estate taxes. Not income taxes and sales taxes.)
That’s just silly. I don’t enjoy paying taxes, but it’s not government “just going after our wallets.” Governments provide necessary services. Without government, as Hobbes pointed out, the condition of humanity is that of war of all against all.
In such condition there is no place for industry, because the fruit thereof is uncertain: and consequently no culture of the earth; no navigation, nor use of the commodities that may be imported by sea; no commodious building; no instruments of moving and removing such things as require much force; no knowledge of the face of the earth; no account of time; no arts; no letters; no society; and which is worst of all, continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short.
Freedom isn’t free, as they say, and taxes are one of the prices. Not just use taxes or reasonable facsimiles thereof; but general taxes as well. The cigarette tax I can take or leave. It’s palatable for politicians for the pernicious reasons cited by the Chronicle Tribune: it taxes an unsavory behavior of a minority of the populace. On the other hand, I’m not pure of heart. I really dislike smoking and if the tax imposed either reduces smoking or reduces the need for taxes on me, then I’ll win to a small degree one way or another.
Meanwhile, the Fort Wayne Journal Gazette’s editorial advises against temporarily suspending the state sales tax on certain goods, characterizing such a suspension as “political gimmickry” rather than sound fiscal planning. Noting that a temporary suspension could potentially help some Hoosiers with back-to-school expenses, the FWJG opines that “goods that are not taxable one weekend should not be taxable the next.” Instead, if lawmakers really want to address the back-to-school costs, they will provide textbooks for either no charge or a sharply reduced fee.
As part of its discussion the editorial says that a strong case may be made for exempting such things as gasoline and clothing from sales taxes as goods that fulfill basic needs. Unprepared food and prescriptions already enjoy such an exemption. However, any such decision should not be made on impulse. If lawmakers want to exempt gasoline from the sales tax, they would be forced to find a way to make up for the lost $300 million in revenue.
Concerning taxation of tobacco and your comments as to perhaps not against—now, as smoker but not a drinker—perhaps that alcohol purchase you recently mentioned should be taxed at say a $1 a six pack (just 16cents per) would be an acceptable thing to do—-think of all the “experts” that would build a case because of all the problems caused by drinking plus try to price it out of the reach of minors, etc. etc… and then if we go farther and say the funds can be used for whatever the government decides it wants to—kind of sounds like a departure from the point of having taxes to benefit the common good without the tax merely being a social statement.
A fair point. Sort of a “first they came for the smokers, but I didn’t object because I didn’t smoke” kind of thing.
If the government banned cigarettes, it would simply create an unregulated black market which might have worse implications for public health (think of the drug market, or think of how much more dangerous moonshine is than Bud Lite). If the government regulates it and taxes it, it leaves consumers with a choice to either safely and expensively use the product or quit. Only those who care the most about smoking will continue. The impact to public health is certainly positive in this case.
I agree that part or all of the revenue should be put toward public health and smoking cessation programs (or even to compensate establishments who elect to go nonsmoking).
I also cannot stand the inconsistency of the “basic needs” argument for sales tax suspension. We want to suspend it for auto fuel, but nobody minds that we pay sales tax on our electricity bills (it’s easier for me to drive less than to heat my house less). We have a suspended tax on uncooked food, but food from McD’s is taxed twice (even though it is often cheaper to eat fast food than to cook). Don’t get me started on a sales tax suspension for clothes…who benefits from that? The working mother of three who shops at Walmart or the wealthy housewife who shops at Saks?
So what do you folks think about use of taxation as a stick and/or carrot for social policy. The big examples of this that come to mind for me are the deductions for children and for mortgage interest. Through these, government policy has been to subsidize families and home ownership.
Is using taxes in this fashion good, bad, indifferent? Just depends on the policy being promoted?
My initial thoughts are that using taxes to provide incentives or disincentives is a legitimate government tool — though obviously it’s an open question as to whether the tool is being used wisely.
Speaking very broadly, I would agree that using taxation as a government tool is a legitimate tool in the sense of being legal, though not one I like, especially when it is intended to encourage an activity. However, when looking at this issue I would make a distinction between general taxes (e.g. sales, income) and excise taxes (i.e. those imposed on some specific thing, e.g. beer).
The income tax is frequently used as a tool for indirect subsidies, and this I consider to be a mistake. Deductions and credits tend to be out of sight, and to hide the true cost. I would rather see open payments rather than deductions/credits being tacked onto the income tax. At least that way it would be easier to see who was getting what and how much it was costing.
Also, employing the Income Tax as a social tool has made the current system a maze. And such popular deductions as the home mortgage deduction has given rise to the unwise assumption of debt through the vehicle of second mortgages, used to fund consumption. I personally think that the home mortgage interest deduction should be done away with, at the very least for second mortgages and for second “homes”.
I think excise taxes though can be viewed differently than the income tax. An excise tax can be imposed logically to fund a related activity, e.g. a motor fuels tax imposed to fund the construction of highways, or to discourage (or pay for the socially bad consequences of) an “undesired” activity such as drinking (but not made so high as to drive the activity underground and thus become a business for organized crime). Once we talk about about using “sin” taxes to pay for an unrelated but desired activity, such as all day kindergarten, I think the Marion CT has a valid point when they write; “Part of the logic behind the tax is at cross purposes. If fewer people are smoking – a healthy reason to like the tax – then less money is coming in to fund whatever project the state wants to fund.” If all day kindergarten (as an example) is so important, if should be funded from the general fund. Besides they were taking issue with the Governor and I can’t imagine myself criticizing my home town newspaper for going after this governor.
So, to answer the question, “Is using taxes in this fashion good, bad, indifferent?”, I would say it depends in part on the character of the tax. I think one of the CT’s points was that kindergarten should be paid for with “general” rather than excise taxes and I think that is a valid point.
A small addition, the CT editor did try to clinch the point with a blatant emotional appeal in the “going after our wallets” comment. That comment was purely demagogic and deserves criticism.
Doug- I don’t like using the tax code as a tool for social engineering, but not merely because I am concerned about who is ordained the “expert” who gets to decide, though that in and of itself is enough to fill volumes.
Ever wonder why the lobbyists are so powerful and so much money gets thrown at candidates for high offices? It’s largely so that the ox they represent isn’t gored. Every tweak in the tax code brings out new lobbying efforts. Think the tobacco lobby won’t be ladling the cash out to try to fight this? Think the health lobbies won’t do the same? I think it means our representative government is less about We the People and more about the monied interests.
Make the tax code fit on a post card, and a whole lot of nonsense goes away.
On point, I can’t help but think that the proposed cigarette tax is high enough to really boost the general fund, but low enough that it would barely put a dent in the percentage of smokers in our state. If Daniels were serious, he might propose taxing tobacco as highly as Canada does, knowing full well that it might lead to a decline in revenues. Alas.
Also, I share Jezebella’s concerns about creating a black market should the product be banned- but also if the tax is high enough that other border states’ taxes are low enough to warrant such activity. What’s the tax in Kentucky? 3 cents/pack? There is already black market activity in Hammond and other Chicago border towns in NW Indiana because of the interstate tax differences.
So, true- governments provide services, and services must be paid for. What is the service the tax on tobacco provides, and why is that government’s job?
I thought to add a comment on this issue about Gov. Daniels’ conduct. It is so typical of him to build support for a program by telling Hoosiers that we won’t really have to pay it. And it is typical of him to hit on a minority to get the money.
When it came to working up support for the Toll Road sale he repeatedly implied that the money realized would cost nothing (a “winning lottery ticket” is one way he described it). Financing this “lottery ticket” was left to the northern tier of counties, particularly those tied to Chicago’s economy. Now he would have us believe that we will finance kindergarten on the pack a day habits of smokers and it will be for theirr own good (its unhealthy anyway). This is obvious moral posturing and he openly targets an unpopular minority.
Daniels’ demagoguery goes way past the CT here, but he is a lot smoother at it.
Mike Kole has a point in mentioning black markets here. Folks living along the Kentucky won’t have to pay for year round kindergarten. They will just slip over the border to buy their smokes. An interesting article on the effects of differing state and local tax regimes was published by the Federal Reserve Bank of Chicago (http://www.chicagofed.org/) entitled: Designing State–Local Fiscal Policy for Growth and Development.
The FICA tax is social engineering – trying to save those who do not save, by taking more of their money and making it harder to save. The FICA tax is supposed to be a dedicated tax, but the dedication is not for you, but the people currently being subsidized.
I would not mind dedicated taxes as long as they are truly dedicated and based on accrual accounting.
Actually, Kentucky just raised its tax to 30 cents/pack. Governments usually increase taxes on other tobacco products in a way that is proportional and simultaneous with the increase in cigarette taxes. And the price of ‘importing’ or ‘bootlegging’ cigarettes from other states increases as the price of gas increases, unless the state border is in walking distance. Just a few things to think about.