by Carl V Phillips
The Washington Post’s Wonkblog (often known as the blog of its first author, Ezra Klein) ran a series of posts yesterday about the proposed tax increase on cigarettes in Obama’s new budget, which would fund preschool education. For people who are supposed to be carefully reasoning economists and Washington insiders, they sure missed some elephants in the room.
Sarah Kliff started it off with a too-trusting piece, in which she cites various claims about the enormous effect that the proposed 50 cent per pack national tax increase would have on smoking prevalence. My personal favorite bit is when she cites a study from Tobacco Control that claimed to prove that heavy smokers are especially affected by prices. Except the data did not support this claim. That is standard practice for that “journal”, of course, and Kliff can be forgiven for not knowing that. But someone writing for a blog that claims to be wonkish ought to at least be able to read the graph she reprinted, the one that divided smokers by intensity and showed that each group was reducing smoking, regardless of the price changes, and all by almost exactly the same rate, regardless of price change. (The exception being the lightest smokers, who apparently smoked more when the price went up, but, hey, little problems with the theory like that are what cherrypicking is for.)
But naivety about the economics is not the real story. Later that morning, Klien praised his favorite parts of the budget, leading with this one. It is hard not to agree with his support for more funding for preschool education, but he also expressed support for the mechanism. This was despite him quoting health policy commentator, Harold Pollack (Chicago prof, old friend of mine, and one of the most anti-smoking people you could ever quote who is actually smart and honest) lamenting that the tax punishes smokers rather than helping them. Worse, Klein even cited fellow Wonkblogger, Brad Plummer, who posted a few minutes earlier a calculation showing the tax will not be enough if it causes smoking rates, and thus revenue, to drop. Thus, it is a very bad way to fund a project.
Completely ignored in this is the reduction in smoking that is going to happen because of THR. People who are not aware of e-cigarettes and the exploding popularity of these and other THR products are likely to get it badly wrong when they write about tobacco policy. (In fairness, these are reporters, and part of the reason that they get it wrong is that the people they talk to who are making tobacco policy are clueless.) The projections about the effects of taxes are based on data from before the coming THR explosion. It is quite possible that they actually understate the effect of the price increase because more smokers will be aware of the good substitutes than before. But whatever the interaction effect, the predictions are utter garbage because the tobacco/nicotine world of the next 10 years will not be anything that has ever been seen before. THR is going to cause American smoking rates to drop substantially for the first time in almost a generation, regardless of prices.
Buried in all of this is the truly unforgivable failure to recognize the apparent hidden agenda. The special interest groups that got this tax into Obama’s budget know very well, though they probably did not tell Obama’s people, that despite their best efforts THR is very likely to make a large dent in smoking rates. As Plummer and Pollack suggested, a focused tax like this is a pretty good way to fund something that is tied to the quantity of sales (like anti-smoking efforts; even if you hate them, you can see the sense in funding them based on cigarette tax revenue, just like road repair being paid for with gasoline taxes), but it is a terrible way to fund something unrelated, like preschool. When sales drop funding for some things should also drop, but obviously not for something completely unrelated.
Therein lies the apparent game. If the anti-THR liar crowd can get the government to fund a popular program with dwindling cigarette taxes, then the next Congress and President will be left scrambling for funding. They are naturally going to look to the increasingly popular e-cigarettes, smokeless tobacco, and other THR products. Never mind that there is absolutely no justification for imposing a “sin tax” on these low-risk products, just like we would never impose such a taxes on similarly low-risk consumer goods like meat, bicycles, and leisure travel. These “other tobacco products” will be in the same mental neighborhood as politicians get frustrated about cigarettes’ drop in popularity, the money will be needed, and so… “well geez, we had to start taxing them.” The narrow special interests will prevail over consumer interests. The ANTZ will get their anti-THR tax, and if they are really lucky they will succeed in keeping enough people smoking that they can stay in business.
Yes, I know. Most anti-THR people seem to be about as clever as a bag of rocks. But there are people hiding behind them who are running the multi-billion dollar tobacco control industry, and they are probably quite capable of figuring out this long con. The only good news is that the Obama budget is generally perceived to be dead-on-arrival, so maybe this will just go away. I hope so, because I have no optimism that anyone will try to block this provision because they recognize that its real goal is to pave the way for a high tax on nonsmokers.