Politicians and the media seem to spend an abnormal amount of time talking about economics theories and principles that they either don’t understand or willfully ignore, because of this I think it is important for people to learn about economics so that they can view all economic debates within the appropriate context. I have, however, noticed a lack of economic themed posts on ProgressiveU, so I’ve decided to remedy this lack starting now. I plan on posting at least one economically themed post every week from now on. I will start out will a purely theoretical view of “sin” taxes.
Now let me preface this by telling all of you young impressionable college and high school students that you should not smoke, and that you should not drink unless you are 21. No one should ever drink and drive. Understand? Good.
In economics taxes have two purposes, the first is (obviously) to raise revenue for the government, the second is to correct for market failures. Taxes that are imposed upon tobacco products, alcohol, gambling, and other vices are referred to as “sin taxes.” Such taxes are, theoretically, the type of tax that correct for social cost that the market does not take into account in the determination of price and quantity. This is not necessarily the case.
The social cost of drinking is pretty easy to see, especially if you have ever been the designated driver. Excessive consumption of alcohol causes some people to become loud, rowdy, and (in some cases) rather annoying. Most cases of public indecency come hand in hand with alcohol consumption, people who get behind a wheel are much more likely to have a car accident and injure a third party, and property is often damaged by people who are intoxicated. The market does not account for such factors when it produces a price and quantity of alcohol, so the sin tax is meant to represent the cost to other people.
The social cost of smoking is more difficult to determine. Many cities now have smoking bans in bars, restaurants, and other enclosed public areas so second hand smoke doesn’t represent a significant cost. The other costs of tobacco products are generally medical expenses. It has been estimated that $72.7 billion are spent every year on smoking related medical costs. That could be a significant social cost, but much of that cost is paid by the smoker (or the smoker’s insurance) so it doesn’t represent a social cost. But there is still a social cost, so logically there should be a tax to correct of it.
Smoking, and smoking related diseases significantly reduce people’s life span. Smokers generally die due to lung cancer which, while extremely unpleasant and painful, kills relatively quickly. Many smokers die from lung cancer in their late fifties and early sixties (that’s important), right before they become eligible for social security payments. So smokers pay into Social Security all of their lives, but don’t take anything out.
Whether smoking should be taxed or subsidized depends on the amount of money put into Social Security relative to the actual social cost of smoking (not including expenses to the smoker), and the interest rate at the time.
This is not to say that you should start smoking (the personal costs are immense, think 72.2 billion) it is just some food for thought, especially for those of you who don’t believe that the government has a place in regulating what you do with your body.
-m-
Though drinking and driving is wrong, I don't think that someone has the right to tell people whether they should drink or smoke. It is their right to do what they want and their money to spend. Yes the costs of medical problems may be high, but there are those of us out there that do drink and smoke and do not care what other people think. I personally do not do either 1) because drinking almost killed me due to my diabetes and 2) smoking including the smoke makes me completely sick, but I will defend other's rights to do what they want 18 or 21 years of age. Most people start smoking before they are 18 and don't care about the consequences both medical or the laws of underage smoking and someone who drinks before they turn 21 don't care about the same as the underage smokers. If they are going to start they are going to start and its up to them to stop what they are doing. Its not like they are going to listen to anyone.
Blessed be to all who read.
Khaos Faerie
"Whether smoking should be taxed or subsidized depends on the amount of money put into Social Security relative to the actual social cost of smoking (not including expenses to the smoker), and the interest rate at the time."
The cost is much, much higher than 72.2 billion. You only considered medical costs but trying to calculate the real social cost would be impossible. First, you shrink the size of the labor force which is unwise when trying to support an economy of scope. Second, you have to consider lost productivity from that worker and their dependents (is the loss of the provider going to effect the present and future productivity of their dependents via loss of educational opportunities, development, etc.?) I'd argue that this would be the greatest cost because of its compounding nature. And all of this is just the tip of the iceberg.
"Harder than ya'll cause I'm smarter than ya'll
I know that deep down it's got to be bothering ya'll
Pay attention, watch fly gon get larger than ya'll
Put your pride on the rocks, make you swallow it all"
I'm assuming the effects of a shrinking labor force and reduced productivity are minimal, because most people with smoking related illnesses are older and will soon be out of the labor force. As for the loss of future productivity I'm still going to argue that the costs are minimal; I haven't seen any research indicating that the dependents of smokers are any worse off than they would be if they were the dependents of non-smokers.
"This is not to say that you should start smoking (the personal costs are immense, think 72.2 billion) it is just some food for thought, especially for those of you who don’t believe that the government has a place in regulating what you do with your body."
I don't see how this proves that the government should tell us what to do with our bodies. I can kind of see the logic of restrictions on smoking, only because of second hand smoke, but the bottom line is that it's your body and, if you have the money to buy a black market lung, then smoke away. Just, not near me, because I'm allergic.
"A casual stroll through the lunatic asylum shows that faith does not prove anything."
Friedrich Nietzsche
It doesn't prove whether or not the government should tell you what to do with your body (ie taxing smoking under certain circumstances). However the government does have the right (or responsibility) to tax things that have a significant social cost, not to tell you what to do with your body but to provide an accurate cost (ie taxing drinking). In a perfect system you could tax being drunk, but there aren't enough law enforcement officers for that, so we have to settle for taxing alcohol consumption at it's social cost.
If I want to get drunk out of my skull (which I don't), that's my problem. The government shouldn't have the right or responsibility to tell me otherwise or to try and dissuade me from doing so. What it can, and should, do is punish me if I harm anyone in anyway while drunk. So, while the government's not going to stop me from getting plastered, it'll make it plain that, wasted or not, the responsibility of my actions lie squarely on my shoulders.
"Alliance - in international politics, the union of two thieves who have their hands so deeply inserted in each other's pockets that they cannot separately plunder a third."
Ambrose Bierce
That's the same logic drug users use, and frankly I usually agree.
"They lie about marijuana. Tell you pot-smoking makes you unmotivated. Lie! When you're high, you can do everything you normally do, just as well. You just realize that it's not worth the fucking effort. There is a difference." Bill Hicks
I agree as well. If you want to shoot cocaine that's your own hard luck. Just leave me alone and I don't care.
"Alliance - in international politics, the union of two thieves who have their hands so deeply inserted in each other's pockets that they cannot separately plunder a third."
Ambrose Bierce