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TOTM The Economist takes on “sin taxes” in a recent article, “‘Sin’ taxes—eg, on tobacco—are less efficient than they look.” The article has several lessons for policy makers eyeing taxes on e-cigarettes and other vapor products. Historically, taxes had the key purpose of raising revenues. The “best” taxes would be on goods with few substitutes (i.e., inelastic demand) and on goods deemed to be luxuries.
The Economist takes on “sin taxes” in a recent article, “‘Sin’ taxes—eg, on tobacco—are less efficient than they look.” The article has several lessons for policy makers eyeing taxes on e-cigarettes and other vapor products.
Read the full piece here.
TOTM On November 3rd, the president of the United States spoke at the Hotel Lowry in St. Paul, Minnesota, in what was billed repeatedly as a . . .
On November 3rd, the president of the United States spoke at the Hotel Lowry in St. Paul, Minnesota, in what was billed repeatedly as a bi-partisan address. The president ridiculed reactionaries in Congress who he claimed represented the wealthy and the powerful, and whose “theory seems to be that if these groups are prosperous, they will pass along some of their prosperity to the rest of us.” The president drew a direct line between prosperity and increased “fairness” in the distribution of wealth: “We know that the country will achieve economic stability and progress only if the benefits of our production are widely distributed among all its citizens.” The president then laid out an ambitious agenda focused on creating jobs, improving education, expanding health care, and ensuring equal rights for all.
TOTM An interesting story in the WSJ Online today about American International Group (AIG)’s use of a standard tax write-off and the political firestorm it is . . .
An interesting story in the WSJ Online today about American International Group (AIG)’s use of a standard tax write-off and the political firestorm it is creating…all because the Washington establishment thought it could hide behind semantics during the bailout era.
Popular Media A new rule kicks in today requiring airlines to include all taxes and mandatory fees in their advertised fares. The rule, part of a broader . . .
A new rule kicks in today requiring airlines to include all taxes and mandatory fees in their advertised fares. The rule, part of a broader “passengers’ bill of rights”-type regulation promulgated by the Department of Transportation, is being sold as a proconsumer mandate: It purportedly protects consumers from the sticker shock that results when they learn that the true consumer price for a flight, due to taxes and mandatory fees, is much higher than the advertised price.
But how consumer-friendly is this rule? Won’t it be easier to raise taxes and fees when they aren’t presented as a line item, when consumers aren’t “startled” to see the exorbitant amount they’re paying for government services? Value-added taxes (VATs), which tax the incremental value added at each stage of production and are generally included in the posted price for an item, have proven easier to raise than sales taxes, which are added at the register. That’s because the latter are more visible so that increases are more likely to generate political opposition. While VATs are common throughout Europe, they’re virtually non-existent in the United States, in part because we Americans have recognized the important role “tax sticker shock” plays in creating political accountability.
Consumer advocates, nevertheless, are lauding the new Department of Transportation rule. They don’t seem to realize that higher taxes are bad for consumers and that taxes are more likely to rise when the government can hide them. They also seem to care little about consumer sovereignty. Don’t consumers have a right to know how much they’re paying to have scads of Homeland Security officers bark orders at them and gawk at their privates?
Filed under: advertising, consumer protection, regulation, taxes
Popular Media Free lunches are hard to turn down for a city staring into the fiscal abyss. As it faces dwindling revenues and the increased demand for public services that usually accompanies a recession, Philadelphia, like most other U.S. cities, is looking for new ways to make a buck.
Free lunches are hard to turn down for a city staring into the fiscal abyss. As it faces dwindling revenues and the increased demand for public services that usually accompanies a recession, Philadelphia, like most other U.S. cities, is looking for new ways to make a buck. However, with unemployment above 10 percent and a fear of providing even more excuses for businesses and more-affluent residents to flee for the suburbs, the city is not inclined to hike income and property taxes.
Spurred by this bleak outlook, Mayor Michael Nutter, like politicians in New York, California, and a host of other places, has hit upon an ingenious idea. Given that, among its other problems, Philadelphia is wrestling with a growing obesity epidemic, why not kill two birds with one stone and tax sodas? While taxing cheesesteaks or Tastykakes might lead to protests up and down Broad Street, a few additional cents’ tax on each soda sold in the city holds the prospect of expanding the budget while trimming waistlines.
This double-dividend argument has been used before by public finance scholars in other contexts, from fossil fuels to alcohol. While almost all taxes are problematic because, in the process of raising revenues, they discourage a desirable activity, taxing “bad” activities supposedly generates cash flow while discouraging the underlying activity.
Unfortunately, like many free lunches, the health benefit from a soda tax is a mirage. Not only is the tax unlikely to generate much revenue as soda drinkers substitute away from the sugary beverages, most of the evidence suggests that they will substitute toward consuming other foods and beverages that are just as bad or worse for their health.
Click here to reach the full article.
TOTM The behavioral economics research agenda is an ambitious one for several reasons. The first reason is that behavioral economics requires a theory “true” preferences aside . . .
The behavioral economics research agenda is an ambitious one for several reasons. The first reason is that behavioral economics requires a theory “true” preferences aside from – and in opposition to — the “revealed” preferences of the decision maker. A second reason is that while collecting and documenting individual biases in an ad hoc fashion can generate interesting results, policy relevance requires an integrative theory of errors that can predict the sufficient and necessary conditions under which cognitive biases will hamper the decision-making of economic agents. A third is not unique to behavioral economics but is nonetheless significant: demonstrating that behavioral economics improves predictive power. The core methodological commitment of the behavioral economics enterprise — as with economics generally at least since Friedman (1953) — is an empirical one: predictive power. Indeed, no less than Christine Jolls, Cass Sunstein and Richard Thaler have described the behavioralist research program as the economic analysis of law “with a higher R-squared,” that is, “a greater power to explain the observed data.”
TOTM Economist and occasional TOTM guest blogger Steve Salop (Georgetown) recently sent me the following questions spurred by the local debate over Governor McConnell’s proposal to . . .
Economist and occasional TOTM guest blogger Steve Salop (Georgetown) recently sent me the following questions spurred by the local debate over Governor McConnell’s proposal to private the retailing of alcoholic beverages…
TOTM Intel Chairman and CEO Paul Otellini recently gave the keynote address at the Technology Policy Institute’s Aspen Forum on the US regulation environment and its . . .
Intel Chairman and CEO Paul Otellini recently gave the keynote address at the Technology Policy Institute’s Aspen Forum on the US regulation environment and its effect of innovation and economic growth (HT: CNET, WSJ). The speech got some play in the media because of its overall depressing tone for the US, and its frank criticism of the current state of US regulatory affairs.
TOTM Barring some sort of last extension Medicare, Medicaid and SCHIP Extension Act (MMSEA) of 2007 will require all property casualty insurers to report all settlements, awards . . .
Barring some sort of last extension Medicare, Medicaid and SCHIP Extension Act (MMSEA) of 2007 will require all property casualty insurers to report all settlements, awards and judgments that involve a Medicare beneficiary to the Centers for Medicare and Medicaid Services. Essentially the MMSEA turns subrogation rules on their head by requiring the defendant to notify a third-party if the plaintiff might owe them money. Under subrogation rules a third-party insurer with an interest in a case, think a health insurer who wants to be reimbursed by a defendant for the injuries caused to the insurer’s beneficiary, would have to join the case which of course would require finding out about the case in the first place.
