The Tax Lie Politicians Love

by Darwin on March 18, 2012

Taxes are good for us, they say. Taxes help pay for the roads, the bridges, and the fire departments across the nation.

More recently, taxes have become a way to protect us from ourselves. Higher taxes push us away from all those horrible behaviors that society simply should not have to deal with. Taxes are the saving grace (although half the country pays no federal income tax)!

Excise Tax Lies

Excise taxes are always defended by complete lies. Here are two great examples:

    1. Gasoline taxes – Gasoline taxes help us make the switch to better sources of oil, they say. Carbon taxes will make the planet healthier, and leave a better environment, proponents suggest. But the noise is just noise – gasoline gets taxed because it has inelastic demand (and Stop Whining About Gas Prices). No matter how high the tax, revenue will surely go up. Carbon is a great source of future tax revenue because it is literally in EVERYTHING. It’s simple chemistry, right? A carbon tax is a tax on anything organic. Anything and everything. What better way to raise funds than to tax EVERYTHING?
    2. Cigarette Taxes – Higher cigarette taxes help us pay for the costs of smoking cigarettes. Public health is affected by the people who choose to light up, which costs everyone money. This is absolutely nonsense. Again, cigarette companies enjoy inelastic demand for their products, meaning each increase in prices is matched with a much smaller decrease in consumption. It’s easy to tax smokers!

Truth about Cigarette Taxes

Cigarette taxes are some of my favorite taxes, because such taxes only show the lies told by politicians. The truth of the matter is that cigarette taxes have nothing to do with public health, or public health costs.

In fact, study after study has confirmed that smoking is good for public finances. While cigarette smoking is shown to increase health care costs (50 cents per pack smoked), smokers tend to die earlier than non-smokers. Discounting the savings back to today, researchers found that the economically efficient tax rate for cigarettes is actually negative 32 cents. Yep – if the government wanted to match the costs of smoking with appropriate taxes, it would have to subsidize the cost of each pack of cigarettes.

Read: government should pay people to smoke if it wants to align taxes with a proper cost-to-benefit ratio for smoking.

Just for reference, the current Federal tax on cigarettes is $1.01 per pack. State taxes can add considerably to the total level of taxation.

Fear the Truth!

Philip Morris, the world’s largest tobacco company, once ran an advertising campaign in Britain to tell viewers that cigarette smoking is good for public finances. English television viewers would have nothing to do with the ad campaign, and anti-smoking groups denounced it as “scary logic.”

But the truth is quite clear – cigarette taxes have nothing to do with public health. Cigarettes, much like gasoline and soon carbon, are just very easy to tax because they’re products with inelastic demand curves. More taxes always means more revenues, and the public wants nothing to do with logical policy. Feel good policy is preferable to better outcomes – some 60% of the American public (likely all non-smokers) support raising cigarette taxes before raising other taxes, or cutting any spending.

Honesty may be the be policy, except in public policy. (For more articles calling BS on politicians and the mainstream media, visit the Criticism archives).

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