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Tilting at Windmills

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October 5, 2007
By: Kevin Drum

SCHIP AND TAXES....By the way, since I wrote about the SCHIP expansion earlier in the day, I might as well take this opportunity to mention that I think raising cigarette taxes is a crappy funding vehicle for it. There are two pathologies at work here. First, PAYGO, which Democrats reinstated after they returned to power this year, requires that any new spending be matched with a revenue source. This typically means a tax increase, which means that every little spending increase has to be matched with some equally little tax increase. The result is an enormous hodgepodge of little tax increases that bear no relationship to a sensible tax system. (Not that we have a sensible tax system now, mind you, but this makes it even worse.)

Second, because Republicans have made general tax increases taboo, the only way to get any kind of remotely bipartisan support for a tax bill is to restrict it to weird, out-of-the-way taxes: sin taxes, excise taxes, various "user fees," and so forth. This makes no sense either, and results in both more hodgepodgey-ness and a tax burden that (often) ends up becoming more and more regressive.

Anyway, the whole thing is a mess. If Congress really thinks we need higher cigarette taxes, I don't really have a problem with that. But picking it out of a hat to fund children's healthcare because we can't get the votes for something more sensible — well, that's just dumb. Blecch.

Kevin Drum 3:14 PM Permalink | Trackbacks | Comments (35)

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Kevin, if you thought the cigarette tax part of the bill didn't make good sense, you should have seen the Senate version which called for up to a TEN DOLLAR a stick tax on premium cigars.

Posted by: John deVille on October 5, 2007 at 3:27 PM | PERMALINK

Some radicals once said a representative government should promote the general welfare of its people and provide for the common defense. I liked their thinking. Somewhere along the line, insurance companies and defense contractors replaced this verbiage. We are reduced to shell game financing to keep a few more people alive. Not even a "general" welfare. We need to go back to the basics of government and reaffirm the common sense and common good that is our Constitution's Preamble.

Posted by: Sparko on October 5, 2007 at 3:32 PM | PERMALINK

John: A friend of mine is a cigar smoker and keeps me keenly appraised of the effect of cigarette taxes on cigars. That's not why I think the cigarette tax was bad policy, but I admit that the linkage with cigars is kind of dumb.

Posted by: Kevin Drum on October 5, 2007 at 3:33 PM | PERMALINK

The anlysis seems to confuse a criticism of process as a necessary indictment of a particular outcome.

The process is "hodge podge", however that doesnt mean the funding in this particular case is "dumb".

IF:
1. You belive cigarette taxes should be increase.
2. Political reality makes it hard to raise taxes.
3. Fiscal restraignt is a high priority (or at least should appear to be).
4. SCHIP is a good idea as is exapanding it.
5. The legislation is unlikely to pass without an acceptable funding vehicle.

THEN:
This outcome is a good idea. Of course you can question the assumptions, but none of them inconsistent with your analysis. Perhaps we should try to change political realities, but its not "dumb" to conclude that moving forward now on SCHIP is more important.

But picking it out of a hat to fund children's healthcare because we can't get the votes for something more sensible — well, that's just dumb. Blecch.

Blech maybe, but I thought you were a proud member of the reality based community. Now you can as a matter of principle not like it, but are you going to cut off your nose to spite your face?


Posted by: Catch22 on October 5, 2007 at 3:37 PM | PERMALINK

This wouldn't be so much of a problem if Dems would have been willing to go with a pretty sizeable 20% increase in SCHIP. Of course, then they wouldn't have an easily demagogueable issue for '08.

Posted by: Brian on October 5, 2007 at 3:48 PM | PERMALINK

We should just borrow it from China.

/snarko on

Posted by: Ya Know on October 5, 2007 at 3:48 PM | PERMALINK

requires that any new spending be matched with a revenue source.

What's the new revenue source for all of Bush's emergency appropriations for Iraq?

Posted by: Martin on October 5, 2007 at 3:49 PM | PERMALINK

This wouldn't be so much of a problem if Dems would have been willing to go with a pretty sizeable 20% increase in SCHIP.

It probably wouldn't have been a problem if the Pubs hadn't increased the size of government by some 30-35%

Posted by: Ya Know on October 5, 2007 at 3:50 PM | PERMALINK

What's the new revenue source for all of Bush's emergency appropriations for Iraq?
Posted by: Martin

Afghanistans bumper crop!

Posted by: Ya Know on October 5, 2007 at 3:51 PM | PERMALINK

Ya Know - If we cut out the middleman and the cost of smuggling, we could pay the poppygrowers more and still let our addicts buy their drugs at a price that doesn't force them to steal, and we would free up some money for SCHIP by abolishing the DEA and having fewer prisons.

Posted by: freelunch on October 5, 2007 at 3:55 PM | PERMALINK

Whenever I read about SCHIP it makes me think about cookies. FYI.

Posted by: Swan on October 5, 2007 at 3:56 PM | PERMALINK

It probably wouldn't have been a problem if the Pubs hadn't increased the size of government by some 30-35%
Posted by: Ya Know

'Cause God knows that no Dems were in on that.

Posted by: Brian on October 5, 2007 at 3:58 PM | PERMALINK

Raising cigarette taxes is a great idea, PERIOD.

It might be a lousy idea for paying for SCHIP but it is still a good idea.

I know it hurts poor adults who smoke and I wish there were a way to help them. Maybe someone smarter than I can figure it out.

However, raising taxes has a proven tack record of reducing smoking of kids. Don't forget that virtually nobody starts smoking when they are old enough to legally smoke. Virtually all smokers started when they were underage or in the army.

What percentage of 18 year olds who have never smoked are going to start smoking in the future? I don't know the answer but I bet it is a very low number.

So if we can stop 14 year olds from starting then, 10 years from now, the number of 24 year old smokers will be significantly reduced. Of course, the money raised from the tax will also be significantly reduced.

Posted by: neil wilson on October 5, 2007 at 4:05 PM | PERMALINK

I have to disagree here: sin taxes are the way to go. The issue is which sins should be taxed.

For instance, rather than raising the cigarette tax, which is already high, why not tax other sins.

I would propose a "Lying to Congress Tax". Using this tax, the Congress could have paid for universal health care for all U.S. citizens.

Or, why not a "Murder" tax, to be paid for by Blackwater and other mercenaries. This tax could easily cover the cost of the war -- or at least, the cost to withdraw our forces.

Or, why not a "Smirk Tax" -- clearly the President's smirk, if not a sin by itself, is hiding many a sin. Bush can probably get his cronies to pay the tax for him, but the money raised would help fund infrastructure projects throughout the country.

Posted by: Dicksknee on October 5, 2007 at 4:06 PM | PERMALINK

I am okay with a cigar tax. It won't impact the poor so much. A cigarette tax which money is used to help people stop smoking and offset medical costs is okay, but to tax addicted smokers is not okay to serve other needs. This is especially true because it hits the poor hardest.

Lastly, shame on us for not paying for SCHIP.

Posted by: George on October 5, 2007 at 4:11 PM | PERMALINK

Another problem with a lot of little taxes is that it lays the Dems open to the attack line that they "voted for 46 tax increases."

Posted by: Virginia on October 5, 2007 at 4:13 PM | PERMALINK

The anlysis seems to confuse a criticism of process as a necessary indictment of a particular outcome. The process is "hodge podge"
Posted by: Catch22 on October 5, 2007 at 3:37 PM

Therein lies the problem. There are umpty different health care programs with umpty different funding mechanisms. This is the best argument I can think of for universal healthcare. The current process increases costs & creates loopholes which leave 1 person in 6 w/o coverage & creates varying levels of coverage among the rest.

I don't know how to create an ideal plan, but I have an idea on how to get one passed. If ALL health care insurance plans were canceled today, I will guarantee we would have universal coverage within 6 weeks. If everyone was unable to get the coverage like about 1/6 of us are, there would be change. Maybe Al & egbert would still disagree, but about 98% of the rest of us would be on board. Think about it.

Posted by: bob in fl on October 5, 2007 at 4:21 PM | PERMALINK

"But picking it out of a hat to fund children's healthcare because we can't get the votes for something more sensible — well, that's just dumb."

you just explained all the reasons why it works that way, what do you want, a miracle? term limits?

Posted by: supersaurus on October 5, 2007 at 4:27 PM | PERMALINK

First, PAYGO, which Democrats reinstated after they returned to power this year, requires that any new spending be matched with a revenue source. This typically means a tax increase, which means that every little spending increase has to be matched with some equally little tax increase.
—Kevin Drum 3:14 PM

This is part of the hodge podge you mention, Kevin. PAYGO doesn't seem to apply to supplemental war funding, does it? Every dime of that money will be borrowed.

Posted by: bob in fl on October 5, 2007 at 4:30 PM | PERMALINK

i started smoking when i was 21(tobacco, at least). i don't understand the 'it costs everyone, because of health care costs' argument, because as far as i've been able to observe, everyone dies, sooner or later. is it cheaper to die at 80, rather than 60?
also, i think the second-hand smoke arguement is pure bullshit. my parents smoked all my life. most ppl back then did, even while pregnant. more ppl still die of medical mistakes, than any one disease or other cause, i think. avoid dr.'s, stay out of hospitals, try to reduce stress, and anytime you see 'research' results, FOLLOW THE FUNDING. also applies to 'global warming'. the earth's climate has gone thru cycles for billions of yrs, but crying disaster has always been a good way to bilk money out of sheep.

Posted by: sameoldjeff on October 5, 2007 at 4:54 PM | PERMALINK

I thought the original funding mechanism was elimination of the subsidies for insurance companies that was part of the Medicare prescription drug plan. But the Republicans wouldn't go along with that and suggested a hike in the cigarette tax.

I heard that one on NPR the other day, so it's probably just part of the liberal/communist/socialist/blame-America-first cabal.

Posted by: Lifelong Dem on October 5, 2007 at 5:12 PM | PERMALINK

Two potential issues I see with relying on a cigarette tax as a source of funding:

1) The SCHIP funding depends on people people buying 35 billion packs of cigarettes over a 5 year period. Is that a reliable assumption? What if people just don't end up smoking that much?

2) If the cigarette tax is raised too much the black market for cigarettes is going to grow. I don't know what threshold makes cigarette tax evasion especially profitable, but you already see it in places like NY that have a $1.50/pack state excise tax. Add $1 to the existing $0.39 federal tax and that's a greater incentive to illegally re-import cigarettes or re-sell cigarettes bought in low-tax states.

Posted by: Joe Bob on October 5, 2007 at 5:33 PM | PERMALINK

KDrum: A friend of mine is a cigar smoker and keeps me keenly appraised

Hmmmm. How much does he think he can get for you?

Posted by: shortstop on October 5, 2007 at 5:40 PM | PERMALINK

Look. S-CHIP expansion is an inherently good idea. Pay for the child's medical care when he or she is young, and the long term cost is a lot less. Health care for children is a social cost, not one that must be borne by

But I find the comments by smokers that this is somehow an unfair tax and a violation of their 'Rights' to be ridiculous. No one needs to smoke. If they don't want to pay the tax, they don't buy the cigarettes. (Or cigars.) It's just that simple.

Posted by: Rick B on October 5, 2007 at 5:45 PM | PERMALINK
Add $1 to the existing $0.39 federal tax and that's a greater incentive to illegally re-import cigarettes or re-sell cigarettes bought in low-tax states.

Reimportation might be a problem, but interstate (versus international) smuggling doesn't evade the federal tax.

Posted by: cmdicely on October 5, 2007 at 6:15 PM | PERMALINK

Well, it cost about $40 billion to arrest pot smokers last year. That could have been some other number, an amount we had collected in taxes on pot, if pot were legalized.

This country is so far off the rails we can't even see the track anymore.

Posted by: serial catowner on October 5, 2007 at 7:01 PM | PERMALINK

Kevin is absolutely right about this. Wait till he sees how the Senate Finance Committee wants to pay for increased spending in the farm bill:

http://www.senate.gov/~finance/press/Bpress/2007press/prb100407a.pdf

Don't even try to start reading this without putting up some strong coffee first. It's one thing to use the tax code as the raw material for the world's biggest origami; these are some of the instructions for doing it.

Posted by: Zathras on October 5, 2007 at 7:42 PM | PERMALINK

kevin, thanks for posting this. i have posted a comment or two on this and other blogs asking why smokers were being asked to pay for this. if it's such a good idea, why shouldn't everybody pay?

to rick b.: why not pay for it with a tax on buicks? after all, you don't have to drive one.

your pal,
blake

Posted by: blake on October 5, 2007 at 7:46 PM | PERMALINK

Martin: "What's the new revenue source for all of Bush's emergency appropriations for Iraq?"

Since it's a Republican idea, a Republican method must be used to raise the revenue, of which there is only one: cut taxes. Lower taxes raise government revenue! It's a fact... that I've heard people claim Reagan proved it.

Posted by: Grumpy on October 5, 2007 at 9:26 PM | PERMALINK

"...This makes no sense either, and results in both more hodgepodgey-ness and a tax burden that (often) ends up becoming more and more regressive..."

Absolutely in agreement.

At some point, regressive consumption (sin) taxation creates an incentive to black market supply those items. One might be inclined to grow clandestine tobacco, cobble together a still, run a neighborhood numbers racket, etc., to generate tax free income. Then you have an enforcement dilemma that requires tax revenue to fund incomes for tax enforcers, then you have to calculate how much of a percentage of effect you get with the enforcement-does more than one dollar of enforcement yield more than one dollar in collected tax revenue-OOPS, and then you've got the OPPORTUNITY COST of enforcers doing this instead of something else more productive-can we say the IRAQI OCCUPATION HERE?. This doesn't even touch the lottery scams the states run to fund education... Can we mention the irrational costs of trying to run an EMPIRE HERE?

There needs to be a new "Laffer curve" researched and investigated of the limits of taxing the stupid poor sinner into penury just so the rich don't have to pay their share. Wouldn't it be better to INVEST in the lower-middle class workers and have them doing PRODUCTIVE LABOR instead and paying taxes based on their success in the workplace? Hello, what we currently have is... SOVIET CALVINISM.

Posted by: Doc at the Radar Station on October 5, 2007 at 11:13 PM | PERMALINK

The other problem with cigarette taxes is that, if they do their job of cutting smoking, they produce diminishing returns in the longer run.

As for user fees and other crapola instead of plain old taxes, Kevin, the problem is often even worse at the statehouse level, especially in conservative states, than it is in DC.

Posted by: SocraticGadfly on October 6, 2007 at 2:27 AM | PERMALINK

Who gives a shit about taxing the bottom line here is that Bush is a complete dumb ass for vetoeing the child health care plan, if it does not include dollar signs for Bush's pocket well just get out the reliable pen.

Posted by: Al on October 6, 2007 at 8:27 AM | PERMALINK

PAYGO isn't a bad idea but how about paying for these programs with offsets from DoD???

Does the idea of paying for CHIP for all children under 18 by redirecting funds meant for 2nd generation X-wing star fighter sound like a good deal to most people out there? By comparison to some of the DoD budget items policy initiatives like CHIP aren't even rounding errors...

Posted by: Bigsky in Iowa on October 6, 2007 at 11:25 AM | PERMALINK

About SCHIP and DEMS non-mentionables - but it's NOT a tax increase - except to cigarette smokers.

WHY isn't it news that Bushie loves Phillip Morris? The big campaign contributor of the GOP. Another no-bid contract friend of the Bushies - Bushis is all about loyality - to the money.

If you got money honey that you KNOW that the Bushies have damn sure go the time. I've noticed that Bushie bootlick, Sen. Kay Bailey Hutchison voted for it. Which of course has Phillip Morris steaming mad (or smoking mad) - sending out political mail that ask WHY she hates redneck Texas smokers so much.

Newt Gingrich said himself that he saw nothing wrong with allowing the highest bidding campaign contributor to call all the shots in US government policy- so why shouldn't Hallibuton get un-bid contracts and Phillip Morris handle Bush's veto pen? It's how the GOP determines democracy - that somehow capitalism defines democracy completely and that you just peddle that aspect to rednecks everywhere - and dumb as they are, they eat it up.

Phillip Morris, like Hallubuton, is a personal good friend of the Bushies and IT IS THE ONLY THING that is considered when Bush, the decider, makes govenment policy decisions, the loyality to the money trumps all else, that aspect that completely defines the entire religion of Bushism and entire religion of the GOP - have they ever been anything else?

Posted by: Me_again on October 6, 2007 at 11:26 AM | PERMALINK

PayGo is at least a good idea, even if the implementation is a bit askew.

Nothing stops them from realigning the taxes and fees later as a 'tax cut' by shifting things around in a more sensible manner, s long as no revenue is lost.

Posted by: Crissa on October 7, 2007 at 3:46 PM | PERMALINK




 

 

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