All for Philip Morris!

Yesterday the Senate overwhelmingly approved legislation giving the Food and Drug Administration sweeping authority to regulate the production and marketing of tobacco products. The bill incorporates the restrictions the FDA tried to impose unlilaterally under David Kessler, including a ban on color and pictures in print ads. It gives the FDA the authority to prevent the introduction or promotion of demonstrably safer tobacco products if it thinks they will ultimately be bad for "the population as a whole." And it protects Philip Morris' position as the market leader by restricting competition through regulatory burdens and limits on advertising (which is why the No. 1 cigarette maker supports the bill and its competitors oppose it).

The upside, according to senators who otherwise would have voted against the bill: It's tied to legislation that gives $12 billion to tobacco farmers to "buy out" their quotas. The money is supposed to come from an assessment on manufacturers and importers. But under the government-enforced cartel established by the agreement that settled state lawsuits against the major tobacco companies, the industry will simply pass the cost on to smokers. In other words, the assessment amounts to a hidden tax increase on a group that is less well-off than the majority.

Meanwhile, the Environmental Working Group estimates that under a $9.6 billion quota buyout plan approved by the House (financed by cigarette taxes), 10 percent of the tobacco quota holders (not necessarily actual farmers) would receive two-thirds of the money, with 462 getting $1 million or more each. So while FDA regulation may be anti-competitive, sacrificing the interests of individual consumers for the sake of a bureaucrat's idea of "the public health," at least it's part of a deal that steals from the poor and gives to the rich.

Comments

[Trey]

Yea, and I bet you drive on government roads too, eh commie?

[linguist]

OH, come on. This is for the best. We should all quit smoking, and save the children, and have our tax dollars go to the poor farmers. They can't speak for themselves, after all! Our Great Society will only be improved by the government forcing us to stop abusing our bodies and minds...

and anyone who says different shall be shot.

Or, to paraphrase the usual quote around here, "They can pry my Marlboro from my cold, dead hands"

[Gilbert Martin]

"Yea, and I bet you drive on government roads too, eh commie?"

"Government roads" are financed by user-fee gas taxes (federal and state) paid for by those who actually drive (use) the roads.

Unlike NPR - which gets a subsidy of everyone's tax money whether they actually listen to NPR or not.

Big difference.

[Mo]

Good point Gilbert. Maybe he shopuld have said, "You probably fly domestically too commie." NPR isn't fully funded by the government. Most of the money comes from the listeners who donate their own money to support the station.

[thoreau]

My understanding is that NPR receives fairly little in direct cash from the gov't, at least nowadays. However, it doesn't have to pay any license fees or whatnot to the FCC, which would be equivalent to a substantial amount of cash.

Correct me if I'm wrong.

Anyway, it would be interesting to see if the dollar value of cash and regulatory perks received by NPR is greater than the dollar value of cash and regulatory perks received by various private businesses of comparable size (as measured by budget, staffing, or some other meaningful variable). I wouldn't be shocked if NPR turned out to be less of a whore than some "private" businesses.

[thoreau]

Before somebody accuses me of thinking NPR's subsidies are "OK", that's not what I'm saying. I'm merely speculating on the possibility that there are other, worse whores out there. But I don't wnat anybody to think that I endorse the subsidies (direct or indirect) received by NPR.

[Gilbert Martin]

"Before somebody accuses me of thinking NPR's subsidies are "OK", that's not what I'm saying. I'm merely speculating on the possibility that there are other, worse whores out there. But I don't wnat anybody to think that I endorse the subsidies (direct or indirect) received by NPR."

That would entail getting into a discussion of what constitutes a "subsidy". There is a big difference between getting a transfer payment of someone else's money and being allowed to keep your own money - although leftists are constantly trying to blur that distinction as when they squawk about tax cuts being a "handout", etc.

[Dan]

The new regulations are anti-competitive, anti-capitalist, and generally all-around bad.

But passing them off as a tax on the poor is silly. Cigarette taxes are like state lotteries -- they tax the foolish, not the poor. Both taxes are easily avoided by people with common sense, regardless of their personal wealth and income.

10 percent of the tobacco quota holders (not necessarily actual farmers) would receive two-thirds of the money, with 462 getting $1 million or more each.

According to the EWG analysis, those 10 percent own most of the quota. Why, then, is it unusual that they should get most of the money in a quota buyout? I see nothing in this report that indicates that that top 10% are being paid more on a per-unit basis for their quotas than the bottom 90% are for theirs.

The buyout may be a good idea or it may be a bad one (presumably the latter), but if it's going to happen at all, don't you think people should paid in proportion to what they're giving up?

[B.P.]

Naive question -- How does the senate square a print ad restriction with that whole first amendment thinger? Did they drag all existing tobacco companies into a forced "agreement"?

[thoreau]

That would entail getting into a discussion of what constitutes a "subsidy". There is a big difference between getting a transfer payment of someone else's money and being allowed to keep your own money

Very good point. I certainly wouldn't describe a tax cut as a "hand-out." However, my understanding is that there are cases of tax breaks that target certain businesses while their competitors remain taxed. I would describe these as social engineering. I wouldn't support increasing taxes on the favored group in the name of fairness, but I would call for a simpler tax code that cuts taxes for everybody and removes the market distortions caused by highly selective taxation.

[Gilbert Martin]

" However, my understanding is that there are cases of tax breaks that target certain businesses while their competitors remain taxed. I would describe these as social engineering. I wouldn't support increasing taxes on the favored group in the name of fairness, but I would call for a simpler tax code that cuts taxes for everybody and removes the market distortions caused by highly selective taxation."

The tax code is indeed rife with social engineering of all types.

Without getting into a discussion of who should or should not pay what and why, the concept of who is or isn't getting a subsidy is fairly straightforward - although the calculation of the details of it certainly wouldn't be.

Anyone whose total federal tax payments exceed his or her prorata cost of those specific federal government activities that have provided that person with a direct benefit or demonstrable measurable indirect benefit is subsidzing someone else - regardless of what their tax rate is or what deductions they get or whatever.

Anyone whose tax payments are less than that calculated amount is being subsidized by someone else.

[c]

There is a big difference between getting a transfer payment of someone else's money and being allowed to keep your own money.

ummm. explain to me the meaningful difference between the government jiggering the tax code to give you x amount discount on your tax bill on one hand, and just letting you pay your taxes and then sending you a bag full of $x on the other. Is this one of those differences without distinction?

regarding your later "subsidy" calculation, what happens in those cases where value delivered by the state exceeds the sum total of all the money taken in? Who's subsidizing those at the margin?

[thoreau]

How do we assign a dollar value to the benefit I receive from police protection as opposed to the dollar value of the benefit somebody else received from police protection? I could easily assign a dollar value to, say, stolen property recovered by the police, but it's harder to assign a dollar value to the deterrent value of the police.

I suppose we could start by asking how much I'd spend on security if there were no police. (Then again, if there were no police how would I even be able to enforce the contract with my security company? Best not to push this too far, I guess. If I were an economist constructing a formal mathematical model I might make some weird assumption like the police only enforce contracts and nothing else.)

But with private security I and my neighbors might notice something: It's over-kill to have one guy with a gun in front of each house, so we might as well split the costs of a handful of armed guards in a neighborhood. This hypothetical and voluntary arrangement might enable all of us to receive a service that we value highly while paying a smaller amount. In some sense we might all be considered subsidized since the value we obtain exceeds the money we pay.

Just another example of how collective action need not be zero-sum, making it harder than you might think to gauge who is actually being subsidized.

[c]

Except, thoreau, there's a guy right in the middle of your block, surrounded by your protected houses and your security guards, who doesn't want to join your voluntary club. His house isn't getting robbed, though, because thieves don't come into your well protected neighborhood. How do you handle that situation?

[thoreau]

ummm. explain to me the meaningful difference between the government jiggering the tax code to give you x amount discount on your tax bill on one hand, and just letting you pay your taxes and then sending you a bag full of $x on the other.

Good point. Suppose that Congress passed the Henry David Thoreau act, stating that anybody meeting some exceedingly narrow criteria, that I and few (none?) others satisfy, will pay $1000 less in taxes than I otherwise would. How is this any different from Congress sending me a check for $1000 and leaving my taxes alone?

Perhaps the term "social engineering" is preferable to subsidy. There's clearly something messed-up about the Thoreau tax cut, even if it isn't a subsidy according to some particular definition of the word.

[thoreau]

c-

The free-rider problem is a second-order effect in this model. First the residents realize the benefits of collective action. Then, AFTER the collective action is undertaken, the free-rider has an incentive to not pay.

The point was simply that collective action can generate benefits in excess of what people WOULD have been willing to pay (i.e. paying a small amount for shared security may produce nearly as much safety as paying a large amount for my own personal guard), and so if we aren't careful about definitions (e.g. Gilbert Martin leaves it vague as to how you define the value of gov't services like police protection) then you could get a case where everybody is subsidized.

I wasn't prescribing any remedies to the free-rider problem, simply tackling the issue of how you measure benefits when calculating subsidies.

[c]

fair enough, any time you can take a collective action, you realize some economy of scale, and thus everybody ends up being subsidized some percentage (without free riders). All this extra value has to go somewhere, so it's evenly distributed.

But with a defector, that guy is being subsidized 100%. In a sense, he's decreasing the subsidy othewise distributed among everybody else.

Furthermore, what if I have a more valuable house than others, or more valuable stuff, or I'm just a more cautious person? The protection is worth more to me. Again the subsidy is not being evenly distrubuted -- I'm getting more of it.

So, pretty much, whenever you have any additional created value (from an economy of scale or whatever) the subsidy is going to end up unevenly distributed.

[Gilbert Martin]

"ummm. explain to me the meaningful difference between the government jiggering the tax code to give you x amount discount on your tax bill on one hand, and just letting you pay your taxes and then sending you a bag full of $x on the other. Is this one of those differences without distinction?"

The distinction I'm talking about is one between someone who gets a $1,000 tax cut and is allowed to keep their own money vs someone who is given $1,000 in welfare benefits, food stamps, etc.

The $1,000 kept by the person whose taxes were reduced earned that money through his or her own activities in the first place. The person who is given welfare benfits is being getting a transfer payment of someone else's money - he or she did nothing to earn it and is unquestionably getting a subsidy.

[Gilbert Martin]

"regarding your later "subsidy" calculation, what happens in those cases where value delivered by the state exceeds the sum total of all the money taken in? Who's subsidizing those at the margin?"

I don't see how it's possible for any government entity to deliver "value" in aggretate in excess of the tax revenue it collects in aggregate.

[c]

How could it possibly be that something is worth more than the labor and materials that went into building it?! Why, that would mean value is just being created by economic interaction! Inconceivable!

[c]

I'm sorry for the sarcasm, it's getting late.

The only subsidy/tax cut difference I can see is in those cases where the discount given would exceed the amount paid in the first place. that does happen, and in those cases you can easily say "subsidy." But that's only at the margin. Everywhere else, I don't see a difference.

[Gilbert Martin]

"How could it possibly be that something is worth more than the labor and materials that went into building it?! Why, that would mean value is just being created by economic interaction! Inconceivable!"

The value of "economic interaction" whatever it may be is created by the private sector - not government. It is not a "service" provided by government.

"The only subsidy/tax cut difference I can see is in those cases where the discount given would exceed the amount paid in the first place. that does happen, and in those cases you can easily say "subsidy." But that's only at the margin. Everywhere else, I don't see a difference."

Yeah, like the earned income tax credit where people are given tax "refunds" of money they never paid in the first place.

However, as I said before it is also unquestionably a subisdidy when someone is collecting welfare, unemployment compensation, food stamps, etc. paid for with taxed collected from someone else. That is a straight transfer payment from one group of people to another and is absolutely a subsidy.

[thoreau]

Let's go back to the Thoreau Tax Cut, a piece of legislation that deducts $1000 from the income tax owed by any person meeting very narrow criteria that only I and a few other (possibly even no other) people can satisfy. (Note that if my tax liability under the current laws would be less than $1000 then with the Thoreau Tax Cut I pay nothing but I don't receive anything either.)

I'm going to go out on a limb and guess that Gilbert Martin would not consider this theft. He might agree that it's bad tax policy, but he wouldn't consider it stealing from other people to enrich me.

Now let's say that the Thoreau Competitiveness Act is introduced after the Thoreau Tax Cut was defeated by a filibuster (damn you Tom Daschle!). In the preamble to the Thoreau Competitiveness Act it is asserted that America is running short of people like me, so it is proposed that people meeting very narrow criteria (assume, for the sake of argument, that anybody meeting these criteria is almost certainly earning enough money to owe more than $1000 in income taxes under current laws) should receive an annual check for $1000.

Let's further stipulate that the administrative costs of both bills are essentially the same.

I'm guessing that Gilbert Martin would say that the Thoreau Competitiveness Act amounts to theft, while the Thoreau Tax Cut is not.

Explain the difference.

[c]

Gil, I don't see where we're not connecting here. First of all, while I think most of us would agree that a private entity (dealing as it must with competition) is better at creating value, that doesn't mean that the government can't create value. What about the street or bridge it builds that ends up facilitating commerce worth more than the cost of the materials and labor? What about the school building and administration whose costs end up less than the value of the educations given there? What about the town market where people feel safe doing business because of the police presence? Investments like these are made all the time -- sometimes they create value, sometimes they do the other thing -- in both the public and private sectors. Often the private sector makes wiser moves, and often a positive return from a government project could have been higher privately. But that doesn't mean that the value delivered by government spending is always exactly what it costs in revenue. That's just silly talk.

It's seems that you see some kind of difference between sending in your tax money and getting a refund check (midyear tax cut!) or sending in your tax money and getting a subsidy check of equal value. I don't know why, maybe you prefer the Treasury Department checks to those printed by other departments? You keep saying "somebody else's money" like the IRS keeps its tax revenues in millions of boxes labeled with taxpayers' names -- with a tax cut you get the dollars from your box, but with a subsidy they pay you out of somebody else's box, and them out of yours.

[Dan]

Explain the difference

There are no differences, but only because you stipulated something that's not possible -- namely, for the administrative costs to be the same. Unless the government is capable of instantaneously taxing you for $1000, determining that you need a refund, and re-depositing the money in your account, all without any cost whatsoever (a physical impossibility), the "tax, then spend" scheme will always have higher monetary costs and opportunity costs than the "just let you keep your money" scheme.

Anyway, a "subsidy" is when you get more than you pay. It seems to me that any discussion of whether someone is being "given" money by the government needs to address whether that individual is receiving more from the government -- in cash or desired/fungible goods and services -- than he is paying in taxes. Most corporations and virtually all people with upper-middle (or greater) incomes pay for a hell of a lot more than they get, let alone want or need. Even most corporate recipients of "corporate welfare" and targetted tax breaks still pay for a heck of a lot more than they get.

[thoreau]

Most corporations and virtually all people with upper-middle (or greater) incomes pay for a hell of a lot more than they get, let alone want or need. Even most corporate recipients of "corporate welfare" and targetted tax breaks still pay for a heck of a lot more than they get.

Well then, I guess that makes market distortions in favor of the rich less odious than market distortions in favor of other groups. Right.

[thoreau]

I should clarify my previous comment: The problem isn't just that some rich people pay less in taxes than they would otherwise. The problem is that it frequently distorts economic activity, encouraging economic decisions that would otherwise not be encouraged. And while this helps businesses in one sector, it hurts 2 other groups:

1) (Most important to a lot of H&R posters) Businesses in other sectors that would have done better in a free market.

2) (Most important to me, joe, and Gadfly) Consumers who have to pay more because less efficient production methods were encouraged.

[Jason Ligon]

Jesus Christ.

I hate people.

[Warren]

AMEN

"I love mankind. It's people I can't stand." Linus Van Pelt

[jc]

It would be funny if it didn't piss me off.

[WLC]

And the DOJ has the audacity to go after the tobacco companies for RICO violations *rolls eyes*

[WLC]

..and overlook the government's own contributions to the "racketeering", of course. I'll say it again: I'm living in a Kafka novel.

[thoreau]

Let's see here:

The industry leader benefits from regulation while its competitors are hurt.

A handful of wealthy tobacco growers will get big payouts from the gov't.

The product yields huge taxes to the gov't.

And all of this is "for the children."

Right.

[Evan Williams]

I heard this on NPR last evening. They started out by saying "the bill would end government subsidies for hundreds of tobacco farmers...", so, naturally, while I was skeptical, I thought, hey, good news for once. Then they continued, "...but would used federal funds to buy out the farmers' quotas, and would give the FDA the ultimate power in regulating everything about the industry." And then I started yelling.

I never learn my lesson, I suppose. Any news coming from the beaurocracy that is good for liberty will inevitably be followed by news that is even worse than what we started with.

Every time I think about how much I dispise these bastards for pissing all over the constitution, my stomach just burns with angst. I'm going to sue Congress when I have to get ulcer treatment. And I'll probably win.

[Sam I Was]

I never learn my lesson, I suppose.

Apparently not. You listen to NPR while bitching about government subsidies.

[Douglas Fletcher]

Maybe I didn't read all this closely enough, but I missed the part where the lawyers are going to make a lot of money out of this.

And please don't tell me they already made enough off of the tobacco settlements.

Clearly this legislation is imperfect if it doesn't allow more lawyers to feed off of it.

[Dan]

(Most important to me, joe, and Gadfly) Consumers who have to pay more because less efficient production methods were encouraged

Are you in favor of abolishing the corporate income tax entirely, and flattening the income tax?

The corporate income tax discourages efficient production methods -- specifically, it encourages people to rely on the government instead of private enterprise. Corporate income taxes raise the price for services offered by corporations, while inferior government alternatives are offered for "free" (i.e., paid for involuntarily, by the corporations, through taxation). Take the United States Postal Service vs. UPS and Federal Express, for example.

The "progressive" income tax scale also discourages efficiency, by making it less attractive for people to attempt to increase their wealth or income through investment or greater effort. In a "flat tax" scenario, you can double your personal efficiency and make twice as much money. Under current law, doubling your efficiency earns you substantially less than twice as much money. People are discouraged from being more efficient, and from working harder or longer. That's bad.

[thoreau]

I definitely prefer a flat income tax to a progressive income tax. I also want it completely free of loopholes.

And when I say completely I mean completely. I've heard that some libertarians favor tax deductions for charitable donations as a way to move away from the welfare state, but that way lies social engineering. It starts with a tax deduction for the money you give to a homeless shelter. Fine. Then a conservative decides that gov't should encourage adoption, so there's a tax break. Then a liberal wants a tax break for people who buy hybrid cars. Next thing you know tobacco farmers will be getting tax breaks for some reason, as well as everybody who ever donated enough money to a campaign, and we'll be right back to economic micro-management via the tax code.

I'm not certain where I stand on the corporate income tax, but I lean against it. However, in the absence of a corporate income tax I would support taxing dividends like any other income.

[thoreau]

Oh, FWIW, I favor eliminating property taxes. I can see certain rationales for a sales tax on property, but if property owners have to pay an annual tax on it in order to keep it then they don't really own it.

The tiny handful of left-leaners here will probably shriek in outrage over the idea of eliminating the property tax, while the rest will shriek in outrage over the sales tax on property.

[Gilbert Martin]

"It's seems that you see some kind of difference between sending in your tax money and getting a refund check (midyear tax cut!) or sending in your tax money and getting a subsidy check of equal value. I don't know why, maybe you prefer the Treasury Department checks to those printed by other departments? You keep saying "somebody else's money" like the IRS keeps its tax revenues in millions of boxes labeled with taxpayers' names -- with a tax cut you get the dollars from your box, but with a subsidy they pay you out of somebody else's box, and them out of yours."

What I see a distinction in - as I have said several times now and you keep wanting to ignore - is the difference between someone getting a tax cut (and keeping his own money) and someone who didn't pay any income tax in the first place getting a welfare check or unemployment check. Those people are getting a transfer payment of someone elses money.