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Wednesday, October 31, 2007

Forgive Me IRS, For I Have Sinned

It seems odd to me that the words public good and externality have entered the popular nomenclature (even if they are rarely used correctly) but nary a peep is heard of the oft employed counter measure of a corrective tax. Instead we must accept such colorful stand-ins as “sin tax,” and the newly christened and hotly debated “fat tax.” Only recently has it occurred to me that perhaps these names are used because the taxes aren’t actually correcting an externality, but instead are simply living up to their namesake and taxing sin and fat.

The most famous example of a sin tax is undoubtedly the one levied against cigarettes, and while there may actually be an externality here (one may make the claim that the smoke from a cigarette is air pollution in much the same manner as exhaust from a car, albeit a very localized version), it’s rarely the one discussed in relation to the tax. Instead we often hear about the staggering medical bills that eventually accumulate for long term smokers, but that fails the externality test immediately. It’s not non-market, the cost is built right in and the obvious cause for trepidation. Many claim the government still has a role to play here because it often is fitted with smoker’s health tabs. However, it seems to me, if that’s the real concern, the root of the problem isn’t the smoking but that the government is on the hook for these medical treatments. Otherwise a million little unhealthy activities must be tracked down and corrected, and we move a great deal away from the ideal of a government of liberty.

But the idea that dealing with these unhealthy actions is becoming the role of government leads nicely to our next topic, the fat tax. Thus far, to my knowledge, there are none in existence here in the US, but the discussion has, more than once, reached the halls of congress so it’s difficult to imagine we’ll continue to be without one for long. The stated reasons for a fat tax are, again, because fat people tend to contract a variety of illnesses related to their heftiness, and thus burden the tax payer with their medical bills. We’ve already discussed why this argument is specious at best.

But if a tax here isn’t correcting an externality generated market failure why do they exist at all? Again I think the key is in the names. Both the word sin and fat have negative connotations, one much more obviously, and thus it would seem the taxes exist simply to discourage behavior that many find unsuitable. But that’s not the role of a government. That’s the role of a nanny.

-Jaeson Madison

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