Tobacco tax skepticism

My latest article for The Atlantic provides four reasons to oppose the new tobacco taxes proposed in the White House budget.

New taxes on pipes and cigars?

According to Bloomberg, President Obama will be proposing new tobacco taxes to fund pre-kindergarten programs:

Obama’s 2014 budget proposal, to be released April 10, would finance a pre-kindergarten program for 4-year-olds with higher taxes on cigarettes and other tobacco products. The president outlined the program in his annual State of the Union speech to Congress. He’s seeking to increase spending in areas such as education while Republican lawmakers are pushing for additional budget cuts as a way to reduce the federal deficit.

White House spokesman Jay Carney declined to elaborate on the proposed tobacco-tax increase. “Wait for specifics,” he told reporters at a briefing yesterday.

Never mind for now that cigarette smokers already suffered a more than doubling of the federal tax in Obama’s first year in office. The “other tobacco products” part of this proposal is reason to worry for those who enjoy pipes and cigars.

The 2009 tobacco tax increases to fund the Children’s Health Insurance Program created some significant disparities among similar products. Pipe tobacco was taxed at a far lower rate than roll-your-own (RYO). Large cigars sometimes get much more favorable treatment than small cigars. As a result, producers and consumers shifted to pipe tobacco instead of RYO and added just enough weight to small cigars to qualify as large. The distorting effects of these taxes were immediate and striking:

These changes are almost entirely a matter of legal classification. Actual consumption patterns haven’t changed in the way the chart suggests. Neither pipes nor premium cigars have enjoyed an explosion of new consumers as a result of these taxes.

Nonetheless, the government wants to fix this disparity. A report from the General Accounting Office, the source of the chart above (PDF), estimates that in the first two years of new taxes these substitution effects may have cost the treasury up to $1.1 billion.

One way to fix the disparity would be to lower taxes on RYO and small cigars, but that’s not going to happen. So don’t be at all surprised if the proposal from the Obama Administration includes tax hikes on pipe tobacco and large cigars, imposing substantial new costs on consumers and retailers.

For more, read Michael Siegel’s take on the tax proposal. And for a longer explanation of how smoking bans, higher taxes, and FDA regulation threaten the premium cigar industry, see my December article in The Atlantic.

Update 4/10/13: Via International Premium Cigar and Pipe Retailers on Facebook, this is apparently the language in the budget proposal:

Increase tobacco taxes and index for inflation

Under current law, cigarettes are taxed at a rate of $50.33 per 1,000 cigarettes. This is equivalent to just under $1.01 per pack, or approximately $22.88 per pound of tobacco. Taxes on other tobacco products range from $0.5033 per pound for chewing tobacco to $24.78 per pound of roll your-own tobacco.

The Administration proposes to increase the tax on cigarettes to $97.65 per 1,000 cigarettes, or about $1.95 per pack, increase all other tobacco taxes by about the same proportion, and index the taxes for inflation after 2014. The Administration also proposes to clarify that roll-your-own tobacco includes any processed tobacco that is removed for delivery to anyone other than a manufacturer of tobacco products or exporter. The rate increases would be effective for articles held for sale or removed after December 31, 2013.

As predicted, all loose tobacco would be treated equally, resulting in a huge tax increase for pipe smokers. Details on cigars are lacking, but it looks they would be hit too.

Incentives matter, tobacco taxes edition

One of the topics I’ve been researching for a forthcoming article is the effect of the higher tobacco taxes imposed by the Childrens Health Insurance Program Reauthorization Act (CHIPRA). CHIPRA raised tobacco taxes across the board but it didn’t raise them equally; some products were hit harder than others. The most relevant disparities are between roll-your-own (RYO) tobacco and pipe tobacco, and between small cigars and large cigars.

Before CHIPRA, pipe tobacco and RYO were both taxed federally at $1.10 per pound. After CHIPRA, the former increased to $2.83 while the latter increased to $24.78. Since the two products can be treated as substitutes for each other, this naturally led to manufacturers and consumers shifting to products labeled as pipe tobacco for use in rolling cigarettes. A similar shift affected the cigar market, where it became advantageous for some producers of small cigars to slightly increase the weight of their products to qualify as large cigars. (Direct comparison of taxes on small and large cigars is complicated by the fact that small cigars are taxed by weight and large cigars by value.)

I knew that these market distortions were occurring, but I didn’t realize just how substantial they were until reading a report from the General Accounting Office (PDF) from earlier this year on the effects of CHIPRA taxes. Here in two charts is a dramatic illustration of unintended consequences at work:

At first glance this may look like booming business for producers of pipe tobacco and cigars, but of course that’s not what’s happening. The changes are almost entirely nominal. Yet since they reduce tax receipts for the government, the pressure is on now to fix the disparity by raising taxes yet again. This would be another blow to producers of traditional pipe tobacco and large cigars, as well as the retailers who sell their products.

The CBO would like to thank you for smoking

Hikes on tobacco taxes are an easy sell to voters because smokers are presumed to pass their health care costs on to society, creating a negative externality that non-smokers have to pay for. The actual budgetary impact of smoking is more complicated: Smokers, by dying earlier than those who abstain, save governments a considerable amount of money. There is a lot of research to back this up, the latest coming from the Congressional Budget Office in The New England Journal of Medicine. The CBO examined a hypothetical increase in federal cigarette taxes indexed to inflation:

Outlays would be lower in that initial phase because decreases in per capita health care spending would outweigh the costs of greater longevity. From about the middle of the second decade onward, however, the effects of increased longevity would outweigh decreases in per capita health care spending, and outlays would rise; but until about the mid-2060s, that growth in outlays would be more than offset by the increase in tax revenues from higher earnings. The largest deficit reduction from the health-related effects — about 0.005% of GDP annually — would occur from about 2030 to 2035. After the mid-2060s, the deficit would be larger than otherwise because the higher outlays would outweigh the health-related revenue increase.

Factoring in the additional excise tax revenues, the researchers project that a tax increase would nonetheless result in a very small reduction in the deficit. Absent those revenues, the federal government is made fiscally worse off by people quitting smoking or never taking it up in the first place.

Michael Siegel, who is usually good at dispassionately evaluating arguments on their merits, is furious:

The rest of the story is that it is despicable that the Congressional Budget Office believes that it is appropriate to evaluate a public health policy based on whether it might save lives and therefore increase Social Security and Medicare spending. In doing so, the CBO is borrowing a page right out of the tobacco industry’s playbook. This type of analysis would never be done for an issue such as mammography, because anyone who advanced such an argument would be raked over the coals.

Like Philip Morris, the CBO should disavow its report and apologize for the argument it advances.

Finally, while it is shameful that the CBO has advanced this argument, it is also shameful that the journal agreed to publish this argument, thus giving it legitimacy. Both the CBO and the journal owe readers and the public an apology.

There is an obvious difference between mammograms, which are a treatment, and taxes, which are involuntarily taken from consumers. Not everyone buys into the argument that smokers should be taxed for their own good. For many, the best case for cigarette taxes is that smokers shift health costs onto the state. The CBO study is relevant to that argument.

In any case, the CBO makes clear in its commentary that budget effects are only one factor that should be considered:

Consequences for the federal budget are only one factor that lawmakers may consider when developing policies to promote health. Others factors include effects on people’s health and well-being, views about the appropriate role of government in influencing behavior, the burdens that policies might impose on people in various circumstances, and effects on the budgets of state and local governments.

Emphasis mine. Siegel, while admirable for his advocacy against junk science in the anti-tobacco movement, often misses the mark on issues related to paternalism.

Tipping and taxing

A smart post in defense of tipping from Greg Beato gets at one of the benefits of tips that many writers neglect to mention:

Make it automatic and it also becomes easier to track, easier to regulate, easier to tax. We tip billions and billions of dollars a year, and it’s not just that the recipients of our largesse manage to avoid paying taxes on much of what they collect. The business owners who use tips as a rationale to pay their employees lower wages end up paying less in payroll taxes, too. And by keeping menu and other prices lower than they would be in a tip-free economy, tipping reduces the amount of sales tax the government can collect as well.

Whether this is a good or bad thing depends on one’s perspective. As someone who goes out a lot, I’m glad the people I tip get to hold on to more of their earnings. And as someone who receives tips, I disagree with those who say I’d be better off if we eliminated tipping and moved toward mandatory service charges or living wages. From a previous post on this blog:

What a service charge would do is give servers less say in how their income is spent. With tipping they can spend it however they choose and enjoy a nice bonus in the form of cash tips that can be partially hidden from taxation. With a service fee the income would be fully taxed or [...] some of the income would be shifted into untaxed health insurance expenditures or retirement funds. This might be better in the paternalist sense of wanting people to plan ahead for their insurance and retirement, but it might not be welfare enhancing for the servers. It would put them in the same position as lots of other American workers: Spending more than is optimal on health insurance because of the tax subsidy, tied to their employer for fear of losing that insurance, out of luck if they lose their job, and with less income to spend on other things. As a restaurant worker myself, I say thanks but no thanks. I’d rather take the cash.

Of course if you think that it’s more important to maximize the tax base and make sure no one is evading taxes, then a service charge is the way to go.

A quick Tax Day post

In typical fashion I put off doing my taxes until tonight. That’s a solid 12 hours ahead of when I did them last year. In untypical fashion, I knew where I’d put all the paperwork needed to complete them. It’s almost like I’m becoming a real adult.

This year was also notable for being the first in recent memory in which I’m receiving a refund, though for the regrettable reasons that I did no paid freelance writing in 2009 and took a capital loss on a mutual fund that I had to sell while recovering from my move cross-country. If I’d realized I was getting a refund I’d have filed sooner. While I’m happy to discover I have a check coming my way, Megan McArdle helpfully explains that getting refunds is not a good thing:

Getting a “refund” on your taxes means that you have just made an interest-free loan to the government. Do you relish the opportunity to make interest-free loans to anyone else, just for the sheer joy of eventually getting your own money back? I hope not.

As it happens I generally only give interest-free loans to people with guns and prisons at their disposal.

I wrote last year about my desire to abolish mandatory withholding entirely. Read the whole thing here or just this excerpt from Charlotte Twight about how withholding manipulates taxpayers to increase the size of government:

We have seen that, on many levels, income tax withholding increases transaction costs to the public of understanding the magnitude of the income tax and of opposing it politically. Government officials always have regarded withholding as a seemingly “painless alternative” (U.S. House Hearings 1980: 35). Lacking an understanding of the concept of present value, many taxpayers do not perceive that withholding causes the real burden of their tax liability to be greater. Indeed, the common practice of overwithholding associates the payment of taxes with an apparent financial benefit rather than cost, distorting taxpayers’ assessments of the actual costs and benefits of government activity. Consistent with a transaction-cost-manipulation model, the expected return of such overpayments makes people feel “happier’” about sending in their tax returns on April 15. The very mechanism of withholding deflects blame from the government by requiring employers to initiate and bear the cost of the forcible extraction of people’s income. Piecemeal collection each payday from income the taxpayer never sees obscures the magnitude of the annual tax. And, because it is a forcible extraction, it raises the transaction costs to the public of expressing political resistance to taxes by not paying them.

And on a lighter note, here’s Reason’s Nick Gillespie and Meredith Bragg reminding us that all this tax money is at least going to a good cause:

Alcohol taxes and the Overton window

We boozehounds on Twitter were abuzz today about a proposed California ballot initiative that would drastically increase taxes on all forms of potable alcohol:

A new initiative that would increase the tax on alcohol was cleared for signature gathering today by the Secretary of State’s Office. And it’s not a modest tax increase, it’s huge. Tax on a six-pack of beer would increase from 6-cents to $6.08. And say goodbye to two-buck chuck–a tax on a 750 ml bottle of wine would go from 4-cents to $5.11. And the tax on a 750 ml bottle of distilled spirits would increase from from 65-cents to $17.57.

I find it hard to believe that this would pass in a state that has so much riding on its alcohol industry and I think that’s sort of the point. Consider the idea of the Overton window:

The Overton Window is a concept in political theory, named after its originator—Joe Overton—former vice president of the Mackinac Center for Public Policy. It describes a “window” in the range of public reactions to ideas in public discourse, in a spectrum of all possible options on an issue. [...]

Overton described a method for moving that window, thereby including previously excluded ideas, while excluding previously acceptable ideas. The technique relies on people promoting ideas even less acceptable than the previous “outer fringe” ideas. That makes those old fringe ideas look less extreme, and thereby acceptable. The idea is that priming the public with fringe ideas intended to be and remain unacceptable, will make the real target ideas seem more acceptable by comparison.

Now it’s possible that the sponsors of this initiative, Josephine and Kent Whitney, truly believe this is a reasonable tax increase. But I doubt that winning the vote is the only goal of this initiative. The aim is to get lots of news coverage for their far-out idea and thereby make smaller tax increases seem reasonable by comparison. So if you don’t want them to succeed, don’t take them too seriously.

Additional note: The Overton window is often described in a very cynical, manipulative context. In contrast, the late Joe Overton’s peers at the libertarian Mackinac Center use it to explain how think tanks can change public policy for the better. They see shifting the window as the noble aim of libertarians working in a world often hostile to free markets and individual liberty. As Nathan Russel wrote for the Center:

A long-term focus on shifting the Overton window allows a think tank to follow its ideals and perform a genuinely positive public service, instead of being constrained to merely advocating those policies that are currently possible. When the window of political possibilities is moved along the political spectrum, the impossible becomes desirable and the simply desirable becomes imperative. This is the true influence of a think tank — shaping the political climate of future legislative and legal debates by researching, educating, involving and inspiring.

[Hat tip to Rumdood, who tweets, "Look, I'm OK with a modest increase in taxes on booze, but from $.65 to $17.57 for a 750mL bottle of rum is insane." Manipulation of the Overton window in action? See also Jeff Woodhead and Chad Wilcox on the Overton window and health care reform.]

Health care reform’s tanning tax

To minimize the penalties you may suffer under health care reform, withdraw from your HSA now and spend the money on some indoor tanning. From this helpful timeline [.pdf] detailing what’s in the reform bill:

Indoor Tanning Services Tax. Imposes a ten percent tax on amounts paid for indoor tanning services in lieu of the tax on cosmetic surgery. Indoor tanning services are services that use an electronic product with one or more ultraviolet lamps to induce skin tanning. The tax would be effective for services on or after July 1 , 2010.

I dislike indoor tanning as much as anyone who’s had “Jersey Shore” intrude into their cultural lexicon but I don’t know why taxing it should be part of health care reform, why this is a logical substitute for taxing cosmetic surgery, or why we were thinking about taxing cosmetic surgery in the first place. Thankfully I tan the natural way, from the glow of my computer monitor.

[Link via Arnold Kling.]

Yes, tobacco taxes really do kill business

A sad story out of Utah where new tobacco taxes are causing at least one tobacco shop, which has been in business since the 1940s, to close its doors. The increased taxes would be bad enough, but the kicker is that they don’t apply just to new stock. Retailers will have to apply the higher rate to all of the inventory they own, even though they purchased it at the old tax rate. In the case of Jeanie’s Smoke Shop that will add up to about $125,000 due in July. Unable to sell their inventory or raise that much cash by then, they’ll be closing their doors instead. Read the full story here.

One Republican state senator supports the tax and comes up short in the sympathy department:

Sen. Allen Christensen, R-North Ogden, who fought for years to raise Utah’s tobacco tax, said he understood that distributors would have to pay the bill, not retailers. But Charlie Roberts, Utah Tax Commission spokesman, said retailers indeed must pay the higher tax and yes, it will come due when the law takes effect this summer.

“If that’s the way it is, then so be it,” Christensen said. “I’m sorry for some of the businessmen the law will impact, but they’re selling a deadly product.”

He also predicted Jeanie’s Smoke Shop and other retailers “will somehow come up with that money anyway.”

Governor Gary Herbert can still veto the bill, but he probably won’t.

[Via @NoCigTax.]

Demon rum, demented tax code

I get a lot of liquor press releases every day. Usually they’re about new products or horrible, horrible cocktails designed for marketing efforts. Today’s batch includes a release that’s all about trade and taxes:

MERCEDITA, Puerto Rico–Destilería Serrallés released the following statement from Roberto Serralles, Vice President, in response to a 13-page invective issued by Diageo yesterday claiming a conspiracy to “kill” the Captain Morgan Rum production deal between Diageo/U.S.V.I.

“Destilería Serrallés has consistently highlighted the dangers of permitting that unreasonable and excessive rum subsidies be given to any corporation. Our main focus has been, and continues to be, for Congress to hold hearings and to study the merits of HR 2122. This legislation seeks to responsibly regulate the rum cover-over program by placing an-across-the-board 10% cap on subsidies to the rum industry. This is exactly how Puerto Rico has self-regulated itself for over 40 years. All we are asking is that the playing field is kept level, that fair competition prevails, and quite simply, that everyone plays by the same rules,” said Roberto Serralles, on behalf of Destilería Serrallés. “Assertions to the contrary are just delusional conspiracy theories.”

This is the latest salvo in a long-running battle between industry giants Bacardi and Diageo and by extension Puerto Rico and the US Virgin Islands. Understanding the conflict requires delving into some bizarre aspects of the tax code, so let’s break it down. (And if you want to read Diageo’s lengthy statement, click here.)

For background, there are three main spirits industry players involved in this dispute. Destilería Serrallés is a Puerto Rican distillery owned by Bermuda-based Bacardi and best known for its DonQ rum line. Diageo is a British-based spirits company whose many brands include Captain Morgan spiced rum. Diageo contracts with Serrallés to distill the base spirit for Captain Morgan. The contract expires at the end of 2011 and Diageo announced three years in advance that it would not renew the contract. [Correction 2/25/10: Serrallés is independent, not owned by Bacardi. Bacardi's involvement is alleged by Diageo.]

Virgin Islands Governor John deJongh, Jr. successfully courted Diageo to open its own distillery on St. Croix. Among the incentives offered by the USVI are a brand new distillery funded by public bonds and marketing money to promote Captain Morgan; in exchange, Diageo promises to stay in the territory for 30 years and hire local workers. The Wall Street Journal places the value of these subsidies at $2.7 billion over the 30-year deal.

So far this sounds like fairly standard competition between jurisdictions to offer sweetheart deals to corporations, but it gets more complicated. At issue is a strange US tax provision called the rum cover over. This law requires that most of the rum excise taxes collected in the US be remitted to the governments of US rum-producing territories. They receive the funds in proportion to how much rum they produce. Importantly, it doesn’t matter what countries the taxed rum comes from. If you buy Puerto Rican rum, the revenue goes back to US territories. If you buy Jamaican rum, the tax money still goes to US territories. Territories benefit no matter where rum sold in the United States originates.

This is what has created such perverse competition between Puerto Rico and the Virgin Islands. Puerto Rico knows it’s not going to be distilling Captain Morgan much longer, but where Captain Morgan ends up is of huge importance to Puerto Rico. If Captain Morgan goes to a foreign country PR will still reap the benefits of the rum cover over. But if Captain Morgan goes to the Virgin Islands, USVI will become a proportionally larger distiller and get a correspondingly greater share of excise tax revenues; this is the money USVI is counting on to pay back the public bonds it issued for Diageo.

According to the Miami Herald, the loss to Puerto Rico could be as high as $6 billion over three decades. Thus the territory has enlisted legislators to block the Virgin Islands deal, resulting in a heated battle between the territories and the liquor giants.

It’s hard to put any of the parties involved on a pedestal. Serrallés itself receives significant subsidies from the rum cover over program, about 6% of Puerto Rico’s take (again according to the Herald). Nor is it really fair for Puerto Rico to begrudge the Virgin Islands greater allocation of excise tax revenues, given that the alternative is Puerto Rico taking lots of money for rum it doesn’t even produce if Diageo moves to a foreign country.

The real problem is our insane tax code that sends revenue to territories for rum they may not produce and with no strings attached. Thanks to the rum cover over provision, US taxpayers may soon be funneling their money through the Virgin Islands government directly to Diageo. If you’re Diageo you call that a “historic and innovative public-private initiative.” If you’re a libertarian you call it corporate welfare.

My inclination is to side with Bacardi/Serrallés on this one and support a 10% cap on rum subsidies. Or better yet, we could eliminate rum subsidies entirely, a proposition neither Bacardi nor Diageo is likely to support.

Sticking it to the stogies

Following the lead of New York’s David Paterson, Massachusetts Governor Deval Patrick has proposed new taxes on tobacco, candy, and soft drinks. Cigars may be hit especially hard:

It would also increase taxes on smokeless tobacco and cigars, generating $15 million for the state. (Administration officials said a $2 cigar that now costs $2.76 would jump to $4.46.)

As cigarette taxes hit their maximum and states lose revenue to SCHIP, they’re going to turn to other forms of tobacco. This will leave cigars especially vulnerable. They can’t be smoked quickly like cigarettes, making them much harder to consume under smoking bans. Nor do they enjoy the cartel protections of the Master Settlement Agreement.

Note also that Boston is scheduled to force its six remaining cigar bars out of business.

[Via the Stogie Guys.]

Shorter L.A. Times

Taxing smokers for services enjoyed by all Californians would be unfair. But since a general tax increase would be unpopular, screw it, let’s just add another $2 to the cost of every pack of cigarettes.

Nevermind the guys in Salem

The real anti-beer action could be taking place in DC:

Joe Six-Pack may have to hand over nearly $2 more for a case of beer to help provide health insurance for all.

Details of the proposed beer tax are described in a Senate Finance Committee document distributed to lawmakers before a closed-door meeting Wednesday. Senators are focusing on how to pay for expanding health insurance for an estimated 50 million uninsured Americans, a cost that could range to some $1.5 trillion over 10 years. [...]

While many of the revenue raisers involve obscure provisions of federal law, most consumers can relate to a beer tax.

Taxes on wine and hard liquor would also go up.

And there might be a new tax on soda and other sugary drinks blamed for contributing to obesity. A tax of 3 cents per 12-ounce drink would raise about $50 billion over 10 years, according to congressional estimates. Diet drinks, however, wouldn’t be taxed.

Thanks to Jason Kuznicki for the link.

Previously:
The wages of sin taxes
Oregon hates its bar industry

Tobacco tax fail

It’s easy to get discouraged fighting the often losing battle for consumer freedom on tobacco issues, but this article made my day:

Pipe and cigar smokers along with those who buy snuff and chewing tobacco in Hawaii are getting a four-month, $400,000 state tobacco tax holiday because of an error in a tax law written by the state Legislature.

House Bill 895 was vetoed by Gov. Linda Lingle, who said it was filled with technical mistakes. The Legislature overrode the veto, and now some of those mistakes are becoming apparent.

“It contains major technical flaws that defeat the purpose of the legislation and will make it virtually impossible to implement,” Lingle wrote in her veto message.

The inadvertent tax holiday was caused by a mistake in the bill that did not specify the tax on tobacco products other than cigarettes during the period from enactment until Sept. 30.

That error, according to legislative researchers, will result in a $400,000 loss in revenue.

And that’s just the beginning of the law’s problems. If you live in Hawaii, stock up this summer!

[Via Cigar Jack.]

Tax me baby one more time

The folks at Blue Oregon love love love paying taxes. “It’s an honor and a privilege to do so,” wrote Carla Axtman on Monday. Today Steve Novick goes even farther and willingly pays more than he is required to:

In completing my tax forms, I decided to make a symbolic statement of concern about what’s going to happen to our state: I didn’t take the $50 tax credit for political contributions, even though I made several times that amount in political contributions. I’m not exactly rolling in dough these days – I made a little over $40,000 last year – but I figured the state needs the $50 more than I need to be subsidized for making political contributions I would have made anyway.

As a libertarian I’m glad to see Steve spending his income however he sees fit. I’ll also give him credit for putting his money where is mouth is and voluntarily raising his own tax bill; I wish other tax advocates were equally consistent.

But that said, this is a very weird thing to do. Steve wants to see children educated, the elderly cared for, addicts treated, and the sick provided with health care. These are all noble goals. They’re not, however, goals that only the government can achieve. Charities address these needs too, and by contributing $50 to them Steve could ensure that his donation is directed to the right ends.

Instead he donates to politicians who share some, but perhaps not all of his views, who might get elected and who might succeed in putting his agenda into action. Then he gives them even more money that might or might not get spent wisely. At the end of this process, I wonder how much of his political contributions actually end up benefiting the people he wants to help?

Steve gets near the truth when he says that the Oregon tax credit for campaign contributions is “subsidizing the political contributions of the relatively wealthy.” It’s a subsidy for the politicians too, transferring money from the state treasury to their own campaigns. It’s a neat trick: the relatively wealthy get to feel good about donating to their favored politicians and the politicians get more money to crow about the good things they’ll accomplish in office.

The downside of having such an active government is that we tend to forget about civil society’s private solutions to public problems; the importance of people wielding the levers of power looms too large in our view. Steve’s extra $50 in taxes is, as he says, a “small symbolic gesture.” I’d humbly suggest that a more effective gesture would be cutting out the political middlemen and donating that money to a cause that directly addresses his concerns.

Oregon hates its bar industry

Portland is said to have the highest number of breweries per capita in the United States. Oregon also has one of the country’s lowest beer tax rates. Coincidence?

We may soon find out. A bill in the legislature would raise the tax on beer from $2.60 per barrel to nearly $50. According to Tax Foundation data, that would give Oregon by far the highest beer tax in the nation. The money will be used largely to fund drug prevention and recovery programs. It’s a shame we can’t legalize drugs and tax them directly, but why should beer drinkers bear the cost?

Even if you think higher taxes on alcohol are justified on Pigovian grounds, this is a horrible year to impose them. Oregon has one of the nation’s highest unemployment rates right now. This bill would hurt one of the state’s few thriving industries while discouraging consumption at a time when governments are struggling to raise it.

If the state is desperate for money, there’s a very simple way to obtain it and encourage people to spend more: repeal the smoking ban that went into effect last month. Video poker and lottery sales are down $3 million per week compared to January 2008. The ban isn’t the only cause, obviously, but it’s likely a significant one.

Unfortunately, Oregon isn’t the only state using budget woes as an excuse for picking imbibers’ pockets. Nick Gillespie notes that Kentucky is raising taxes too. Expect to see more of this as the year goes on.

[Thanks to Jan and Patrick for bringing this to my attention.]

What Obama can learn from Putin

No, seriously. This is fiscal stimulus:

Amid a financial crisis that is cutting jobs and eroding growth, there is finally good news for Russians.

The head of the new state alcohol agency — gleefully dubbed the Ministry for Vodka by the press — is advocating cutting taxes on vodka to make the country’s national tipple more accessible, the Izvestia daily reported.

Igor Chuiyan, the former head of state alcohol monopoly Rosspirtprom, has been appointed head of the new federal agency for alcohol market regulation, or Rosalkogol for short.

Without citing its sources, the paper said he advocates slashing the tax on a litre of pure alcohol from the current 190.8 rubles ($A9) to 100 rubles $A4.50).

This would mean that the tax on half litre of vodka would be cut to around 20 rubles from the current rate of 38 rubles, it said.

There’s a health motivation for the tax cut too. The article reports that high taxes have created a large black market in counterfeit vodkas and resulted in dangerously adulterated products.

That’s not a problem here in the US, but there’s a case to be made that the most effective fiscal stimulus would be cuts in our most regressive taxes, like consumption taxes or the FICA/Medicare payroll deductions. Ed Glaeser argues the point here (previously linked on Friday’s sidebar).

[Via TMN.]