Thursday 20 September 2012

The world's most regressive tax

One obvious objection to sin taxes and minimum pricing is that they are deeply regressive—they hit the poor much harder than they hit the rich. You might expect left-wing do-gooders to care about this but, with few exceptions, they are remarkably comfortable with it, which suggests that reforming the working classes is more important to them than making the poor wealthier.

When pushed on this issue, advocates often claim that because the poor have less money, they are more likely to change their consumption patterns in the face of price rises and, therefore, their health will benefit more than the rich from drinking/smoking/eating less. Far from being regressive, they say, sin taxes disproportionately benefit the poor. By their logic, in terms of health, such taxes are progressive.

It's a nice piece of rhetoric and there's only one small problem with it: It's bollocks. Real world experience from every corner of the globe throughout history has shown that the poor are less likely to adopt "healthy lifestyles" as a result of tax rises. Instead, they are made poorer.

Smoking is a classic example. In the 1940s, smoking rates were evenly spread across the classes. Today, after decades of increasing tobacco duty, those on low incomes are three times more likely to smoke than those in white collar jobs (as I explain in The Wages of Sin Taxes). This is the exact opposite of what should happen if the poor responded to price hikes more readily than the rich.

This week, a new study found that the sky-high cigarette prices in New York have acted as a massive tax raid on the poorest in society which has done nothing to reduce smoking rates amongst that group.

Poor smokers in New York State spend about a quarter of their entire income on cigarettes, nearly twice as much as the national average for low-income smokers, according to a new study.

The study, conducted by the non-profit research group RTI on behalf of the state's health department, found there was no statistically significant decline in the prevalence of smoking among poorer New Yorkers between 2003 and 2010, even as the habit declined by about 20 percent among all income groups.

The statistics are stark, but they should not be surprising. Smokers who earn less than $30,000 a year are spending 23.6 per cent of their income on tobacco. Those who earn more than $60,000 are spending just 2.2 per cent of their income on tobacco. Low income smokers are spending twice as big a share of their income on tabs than they did in 2003.

You would think that those who claim to be concerned about poverty and inequality would have something to say about this blatantly regressive and ineffective policy. Instead, their paternalism and blind faith in patently absurd 'public health' promises blinds their eyes.


Carl Phillips has more to say on this. Well worth reading.


Pat Nurse MA said...

Sadly, they don't learn from this. It just makes them more determined to bully the poor into the shape they want them to be because they can to ease their own champagne socialist consciences. They make me sick and that's very bad for my health. I wish someone would shove them in plain packaging.

Anonymous said...

It comes as no surprise that The Righteous are impervious to the damage they are doing to the low-income families in NY. They will continue to pontificate from their ivory towers while the people starve. "Let them eat cake".

What does surprise me is that there is not a massive black market servicing these smokers at the bottom end of the financial scale. I'm sure if I lived in New York, I wouldn't be paying a penny in state tobacco tax - I would have found an alternative and cheaper supply line.

JohnB said...

Chris, many a time as I’ve been reading the latest Tobacco Control Racket “research”, I’ve found myself asking the question – can the blathering get any more stupid, more inane, more contrived, more incompetent? Have we reached the bottom of the asininity barrel? And just when I think we’ve seen rock bottom, the deep sewer region of agenda-driven drivel…. Ka-POW….. BAM…. along comes some article that sets new depths in bunkumville, that makes previous records of dullardity (you know what I mean) seem like the font of wisdom.

The latest multi-star rating for swill comes from Solita "Winnie" Collas-Monsod of the University of the Philippines, an “economist” [giggle] no less (I’m assuming that the University of the Philippines is some child-minding centre specializing in theater for the toddlers).

Chris, in light of your current thread on regressive taxes, Winnie’s pooh (economic appraisal) should be instructive [giggle]. Now hang on to your hat….. are you ready?…… it’s not every day that you’ll hear this sort of bottom-shelf trash….. this to-be Vintage Garbage™…. contained in one short article.


JohnB said...


ECONOMIST Solita "Winnie" Collas-Monsod of the University of the Philippines debunked yesterday the claim of tobacco firms that smuggling will rise if a "sin tax" reform measure is enacted.
"Smuggling is an enforcement issue," she added, saying that it is the function of law enforcement to curb smuggling, not taxes.

That’s what we need – a good economics “debunking”. Got that, Chris? Smuggling won’t rise following the imposition of “sin taxes”. And if smuggling does rise following “sin taxes”, then it’s certainly not caused by the “sin taxes”. Smuggling and increases therein actually pop up out of thin air (i.e., aerogenic), entirely unrelated to sin taxes. Ergo, the rise in smuggling following sin taxes, but not caused by sin taxes, is a law enforcement issue. Why isn’t law enforcement doing its job properly? There you go. I’ve learned something already.

OK. Next lesson.

Ms. Monsod also said that the sin tax is only just, despite the claim by tobacco companies that the tax is unfair for the poor. "It is precisely [why] we want the poor to stop [smoking because] they can’t afford medication," she said.

Ahhh. The “economist” now speaks justice. The justice of the “sin tax” is to coerce the poor to stop smoking. This is a well-known fact in “Winnie’s world”: Slap on extortionate taxes and the poor immediately stop smoking, recognizing the wondrous benevolence of government. Everyone knows that.

Wait….. there’s more from Winnie.

The economist also said that the government will not lose money even if the sin tax is increased, citing steady demand from addicted smokers. "People addicted will still buy cigarettes. Those who cannot afford will not buy [them]," she said. "All the studies, without question, show that because of the inelasticity of demand, when you raise the price, total revenue will go up because there are addicted consumers. It’s as simple as that."

You see…. the government won’t lose money. Addicted smokers will simply pay the extortionate taxes. And it’s fair and just that the government exploits “addicted smokers” for more loot. But, the tax is supposed to force poor smokers to quit. Ahhh. People addicted will still buy cigarettes – they won’t quit. So which is it? If they are poor and can barely afford the increased prices, then they are made poorer: That sounds just. But if the people addicted are so poor that they can’t afford the extortionate taxes, then they won’t buy them; “it’s as simple as that”…… apparently. The people addicted who can’t afford the extortionate taxes – forced to quit…… a matter of justice – have no other recourse because a contraband market, which has nothing to do with [artificially inflated] sin taxes, i.e., aerogenic, does not supply people who want to smoke but can’t afford extortionate taxes. The contraband market apparently exists to supply seagulls on the beach. “It’s as simple as that”. Now we know why people study economics – so they can make things simple to understand.

JohnB said...


One final word from the economics “oracle”, the debunker extraordinaire:

"Revenues are going to increase. In no country in the world with even greater excise tax has there been revenue decrease," she added. Rejecting tobacco companies’ claim that the economy benefits from the tobacco industry, the economist said that the annual gross revenue from cigarette sales worth P103.8 billion does not offset the health care costs, foregone income due to sick leaves and premature deaths totaling P188.8 billion.

It’s good of Winnie to remind us…… we all know what a burden smokers are on society; we’ve seen a few of those “impartial” government reports (thank heavens economists are such a boon for society). However, I’m not sure what sick leaves (or withering branches and such) have to do with anything, especially foregone income. When all is said and done, the actual quit rate – if any - will be incredibly low, many poor smokers will be made poorer still, and very-poor smokers will enter the “criminal” arena seeking out an alternative supply of [cheaper] tobacco. But fear not. The important thing is that the government will make more money and we have economists attempting to make the robbery appear as benevolence. “It’s that simple” with justice all round.

Thanks to Winnie, the well-trained, “educated” imbecile.

Michael J. McFadden said...

"You would think that those who claim to be concerned about poverty and inequality would have something to say about this blatantly regressive and ineffective policy. Instead, their paternalism and blind faith in patently absurd 'public health' promises blinds their eyes."

You said it perfectly right there Chris! And thanks for digging out that 23% vs. 2% expenditure figure: wonder if that'll get highlighted in the media? Yeah, right.


jredheadgirl said...

I'd like to know where our health insurance is. Surely, we have already paid for it 5 times over. Wasn't that the whole justification for the Master Settlement in the first place? Many states have borrowed against future MS bonds and are now in debt to the very industry that they purport to hate. Professor Kip Viscusi of Harvard pointed out how smokers have been paying more to the state than the costs needed to cover the healthcare of smoking-related disease(s) ever since the enactment of the Master Settlement. Politicians have squandered that money for their own pet projects and continue to do so every single time that they raise taxes on tobacco at the city, state, and federal levels. It's all been a racket since day one. The poor always get screwed, and in this example, in more cases than one.

Michael J. McFadden said...

Excellent point J. Particularly when one looks at the figures and realizes that even the MSA charges were bogus: if you believe the Antismokers' research indicating that smokers die several years younger than nonsmokers (as the New England Journal of Medicine did) then you're forced to the same conclusion as the NEJM: That smoking, even quite aside from taxes paid by smokers, is saving the US taxpayers over $200 billion dollars a year in end-of-life medical costs.

For true FAIRNESS, if all we wanted to do was make a pure economics argument, smokers should be getting PAID a few dollars per pack.

Unless the Antismokers are lying about smokers dying early of course. Kind of leaves them between the devil and the deep blue sea, eh? :>