Sin taxes and the politics of meaning: No way to pay the doctor

David G. Tuerck

August 1993

The Clinton administration has expressed a desire to fund a new health-care plan from increases in "sin taxes" -- excise taxes on tobacco and alcohol products. The stated rationale is that the tax hikes would simultaneously raise revenue to pay for the new plan and reduce health-care costs by discouraging unhealthy behavior.

Maybe this isn't the only rationale for the proposed higher taxes, however. That something actually having to do with religion may be going on here is suggested by an article in the New York Times Sunday Magazine titled, "Saint Hillary." The article, which carries a picture likening the First Lady to Joan of Arc, explores the theological and intellectual roots of the "communitarian" philosophy that she has been expounding lately. That philosophy appears to consist of the subordination of individual values to a greater, communal good -- all based on something called "the politics of meaning."

For those whose behavior might, according to this new religion, be deemed sinful, this is no mere philosophical issue. Mrs. Clinton is in charge of fashioning the new health plan and would presumably be responsible for the proposed increase in "sin taxes." In this endeavor, she has the full support of the president. Her rhetoric blends well with his call for "shared sacrifice" in the name of deficit reduction.

The vast majority of us who are nonsmokers or light drinkers should therefore think twice before endorsing the proposed tax hikes. The fact that we won't be much affected this time around should be of little comfort, if it turns out that we are now in the grip of a latter-day Carry Nation who has more plans for subordinating our individual selves to the greater good.

After all, there is no reason to limit the politics of self-denial to just alcohol or cigarettes. A "sin-tax" proposal would raise taxes on just a few of many items whose consumption someone might wish to discourage and that are believed to represent, incidentally, a lucrative revenue source. Another proposal receiving serious attention is that of imposing a value-added tax, which would, in effect, raise taxes on everything we consume.

It is necessary, in understanding this new Calvinism, to consider the dubious nature of the Clintonites' claim to moral authority. "Sacrifice," as Ayn Rand has told us, is what politicians ask for when they want to take something away from us -- choices about our personal habits, for example. To suggest that higher "sin taxes" are needed in order to reduce health costs is to garb nascent "Big Brotherism" in the language of pseudo-economics.

Take, for example, the argument made by proponents of the tax hikes that the "social costs" of cigarettes are more than $2 per pack, this cost defined to include the supposed value of lost production and wages and of medical care attributable to smoking. The trouble with such arguments is that these social costs are borne by the smoker and are thus of no legitimate concern to "society."

Economics distinguishes between two kinds of social costs that arise from an activity. The first are costs that are "internal" to the person engaging in that activity-- costs borne by the person engaged in the activity. The second are costs that are "external" to that person-- costs imposed on others. When the costs of any activity are fully internalized, they are no longer a legitimate target of public policy efforts aimed at reducing them.

I could therefore do any number of things that might run up my health-care costs and reduce my ability to produce and earn wages: smoke, drink, skydive, exercise too much or too little, or eat fatty foods. The purpose of health policy (or at least a health policy that respects, rather than denigrates individual values) is not to make choices for me concerning these activities, but to make sure that I pay the full cost that arises from my engaging in them. Once that cost becomes entirely my problem, the choice to incur it or not becomes entirely my business -- not yours or the Clinton administration's.

Do we really want a philosophy of government that sanctions any form of individual behavior only insofar as it passes some communitarian litmus test? Shall we put a special tax on ice cream on the theory that people who eat it shorten their productive lives and may not be adequately insured for their health care? Shall we limit the number of people who study poetry on the argument that they are at risk of entering a profession that pays lower wages than, say, hair cutting?

The principal reason that health-care reform has become a legislative priority, assigned to the first lady rather than some other national issue, is that our health-care institutions generally fail to internalize health-care costs and efficiently and accurately charge consumers for the services they receive. Among the problems are the absence of price competition among medical providers, continued willingness by employers to subsidize the use of fee-for-service over HMO providers, frivolous malpractice suits, health-insurance fraud, and excess hospital capacity.

These, not one form of consumer behavior or another, are the root causes of the health-care crisis. Raising "sin taxes" represents, in this context, an attempt to exploit one group of consumers -- smokers and drinkers -- whose ability to mount significant resistance is weakened by the political disadvantage from which, by virtue of their personal habits, they suffer. Some claim to moral authority!

Smokers are particularly vulnerable because their numbers are smaller, and, given the temper of our times, their public relations problems greater. The same President who promised a tax cut for the middle class thus mobilizes his first lady to float a tax increase that would fall five times more heavily on the middle class and fifteen times more heavily on the poor than on the rich.

Suppose we put on hold our concerns about interfering with individual choices and follow the first lady's signal to make the health of smokers a matter of social policy. The case for higher "sin taxes" is still specious, at best. When you consider the low price sensitivity of smokers, a higher excise tax turns out to be more a revenue raiser than a deterrent to smoking.

Massachusetts recently approved a 25-cent increase in the state cigarette excise tax. The Massachusetts tax hike can be expected to cause the pack-a-day smoker to cut back by only about three-quarters of a cigarette per day. The same tax hike, which can be expected to raise about $65 million annually, is supposed to bring about a decrease in the number of young people who take up smoking. This decrease would be about 845 per year, at a cost to the taxpayer of over $76,500 per discouraged smoker.

Congress should consider the Massachusetts example as well as the dubiousness of the Clintons' new theology before it rushes ahead to raise "sin taxes," should such a proposal be made. It appears that "politics of meaning" is nothing more than what the first lady means by politics.

David G. Tuerck is executive director of the Beacon Hill Institute and chairman and professor of economics at Suffolk University. This article first appeared in The Brockton Enterprise on August 22, 1993.

Format revised on 18 August, 2004