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).

{ 11 comments… read them below or add one }

Darwin March 19, 2012 at 8:14 am

Nice one JT – of all the lies they tell related to taxes, the one I hate the most is the real motivation to tax any and all things as a pure MONEY GRAB. These inept morons that run our municipalities, states and federal government continuously find newer and even subtle things to tax just so they can spend more (actually, they don’t even pay off what they spend). Crazy.


JT March 19, 2012 at 12:56 pm

Yeah, it’s annoying how much we spend on projects to never be repaid. Municipalities are the worst players of massive “balance transfer roulette.” My municipality just spent millions for a new stadium, one smaller than the existing one just because the existing stadium needed some work. Rather than wait until the old stadium fell to pieces, they gave it the go ahead years before a true replacement would otherwise be necessary.

Not surprisingly, the new build is also “paid for” with other excise taxes. Hospitality taxes, in this case.


Chris G March 19, 2012 at 11:22 am

How are cigarettes and carbon “inelastic demand curves,” I am pretty sure that when gas prices go up people can drive less (and have in the past) and people can stop smoking…

Very interesting about the cost of people who don’t smoke living longer. I had not seen that article. Perhaps the end goal of government isn’t just to save money, but to help people have a better quality of life.


JT March 19, 2012 at 12:16 pm

They have inelastic demand curves because an increase in prices does not lead to a proportional decrease in consumption. If gas goes up 10%, people do not drive 10% less. Maybe 3-4%, but certainly not 10%.

A better quality of life is believable, but look to the arguments they use when new taxes are passed on cigarettes. It’s always about the cost of health care, when in reality, cigarettes are the best thing to happen to health care costs in a long time.


krantcents March 19, 2012 at 1:21 pm

The real problem is expecting that politicians will tell you the truth. They seem to say the right things to get elected and when they get to Washington or any government office, they do whatever they want. Cutting spending is almost the same, they do not approach the issues to really solve the problem. As citizens, we contribute to the problem and re-elect them. We get exactly what we deserve.


JT March 20, 2012 at 11:26 am

I hear you!

This is why I no longer encourage people to vote. If someone needs encouragement to go to the polls, I don’t really want their vote to be counted. Don’t care enough to vote on your own? Well then, stay home!


Joe @ Retire By 40 March 19, 2012 at 5:20 pm

Yeah, I heard that story about the cigarette tax a while back. I’m still skeptical though. If a person lives a longer more healthy life, wouldn’t they contribute more to public finance through additional taxes and such?


uclalien March 20, 2012 at 2:24 am

No. People who live longer collect social security, medicare, and a whole host of other public benefits longer. By the point most people near retirement age, the government has already sucked the vast majority of any taxes they are going to get out of them. Everything beyond that point is a loss from a public finance standpoint.


JT March 20, 2012 at 11:25 am

Yep! And it’s important to remember that any money in the entitlement trusts is pretty much an illusion. The value of the Social Security Trust Fund is backed by US Treasuries, the equivalent to me saying that I have $500,000 in assets because I wrote myself an IOU for $500,000 one afternoon.


JT March 20, 2012 at 11:29 am

Thing is, the entitlements have a discrete starting point at whatever age you select – 62, 66, or 70 years of age.

Most people will live to 62-70 without any problem, paying taxes all the way. All things being equal, two people who start collecting at 70 and die at 75 and 80 years old have very different costs. The person who lives to 80 costs half as much as the person who dies at 75, even though the difference in longevity is a tiny 6% difference.


JT March 20, 2012 at 11:30 am

That should read that the person who lives to 80 costs twice as much as the person who lives to 75 years old.


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