Distributing the Financial Benefits of Paternalism

I admire Australian Prime Minister Julia Gillard for promising that 50% of the revenue from her proposed carbon tax will be returned to the Australian people as a tax cut. I’d admire her more if it were 100%, but nonetheless she deserves high marks for recognizing that there is no essential logical connection between reducing an undesirable behavior through taxation and increasing the size of government.

The norm in my field is to propose hypothecated tax policies along the lines of “Double the excise tax on beer and use the money for alcohol use disorder treatment” or “Increase tobacco taxes by a dollar a pack and spend the money on smoking prevention programs targeted at youth”. Although in some cases those may be wise policy proposals, they gloss over two significant problems.

First, money allegedly earmarked for specific health, social welfare and green environment promoting programs is often spent by governments on other things. Only a small part of the massive tobacco settlement is being spent as promised. Seven years after enacting a special income tax to specifically fund mental health services, California leads the nation in mental health service cuts. “Raise the tax on cigarettes by a dollar a pack so that we can spend 8 cents on tobacco prevention, 10 cents on prisons, and the rest on highway repair and debt service” isn’t a sexy political slogan, but it’s closer to the truth than many health advocates would like to admit.

Second, just because there is a consensus among voters to suppress some behavior doesn’t mean there is a consensus to grow the state. Particularly in the U.S., appreciating this difference may be a prerequisite for establishing a
“sin tax” and sustaining it over time. A proposal to raise the tax on cigarettes and beer and give every American an increased federal tax deduction with the proceeds would be far more likely to succeed than would a proposal that let the state pocket the tax revenue.

I suspect this issue gets little attention because “sin tax” policies are often formulated by advocates who genuinely care about the problem behavior but also are tempted to seek rent at the same time. In addition, people who want to use taxes to suppress particular health and environment damage behaviors usually (though not always) hail from the political left, in which the idea that a larger state is good may seem to go without saying. If they took a page from the Australian PM, U.S. sin tax proponents would broaden their political support and create a public image of selflessness that matches the noblest of their impulses.

Author: Keith Humphreys

Keith Humphreys is the Esther Ting Memorial Professor of Psychiatry at Stanford University and an Honorary Professor of Psychiatry at Kings College London. His research, teaching and writing have focused on addictive disorders, self-help organizations (e.g., breast cancer support groups, Alcoholics Anonymous), evaluation research methods, and public policy related to health care, mental illness, veterans, drugs, crime and correctional systems. Professor Humphreys' over 300 scholarly articles, monographs and books have been cited over thirteen thousand times by scientific colleagues. He is a regular contributor to Washington Post and has also written for the New York Times, Wall Street Journal, Washington Monthly, San Francisco Chronicle, The Guardian (UK), The Telegraph (UK), Times Higher Education (UK), Crossbow (UK) and other media outlets.

4 thoughts on “Distributing the Financial Benefits of Paternalism”

  1. Agreed, in principle.

    Dedicated revenues are a bad idea when they work and a sham when they don’t.

    But when we’re laying off cops and schoolteachers and telling the families of disabled people that they’re on their own, and Republicans are insisting that we “can’t afford” to invest in the future because of the deficit, searching for non-distortionary taxes that could pay for more adequate public services is also a perfectly reasonable strategy.

  2. Also note that, where a cigarette tax or a tax on junk food is paternalistic, a carbon tax is simply a more efficient means than regulation to control an external cost.

  3. I am glad that this approach is finally being used. I have long thought and argued to no avail that the best way to do a carbon tax here would be to make it revenue neutral, with the money acquired reducing the amount businesses and the self-employed pay in Social Security. Labor becomes cheaper without reducing wages and carbon becomes the equivalent of more scarce, so people look for more efficient uses of it and for substitutes. Win on every front.

    Raising needed money is another issue – one I support – but it should be dealt with on its own merits, which are considerable and the American people are already on board.

  4. A revenue-neutral carbon-tax is probably the only approach we could consider here. I would have no problem with that. If only we could get it on the table. Too bad we only have control of the Senate and the Executive…

    [ RE the side-show:
    KH: … denigrating every other commenter…

    Um, read the comment again, then lookup “sarcasm”. I respect his comments because they are almost always substantive (if somewhat bleak). I doubt I’m the only one who finds this to be the case, but perhaps only the one willing to point it out. ]

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