Underreported Congressional Bullets

Congress is mulling over the following things, at the moment, not that most Americans have heard about them.

• Speaking of sin taxes, Congress is contemplating a series of “lifestyle taxes,” including, most infamously, a tax on non-diet soda to help pay for health care reform. The rationale is that high-sugar soft drinks contribute to obesity. Well, so do La-Z-Boys and Snickers. One of the reasons sin taxes are palatable is they generally enjoy support from tax-hesitant constituents — even prohibition had its share of popular support at the time. I don’t think soda is seen as enough of a public evil for this to fly, especially given the absurd number of industries up in arms over this. Kudos for creativity, though.

More on Sin Taxes

Since my first post on the subject was so popular (he says, to an empty room) I thought I’d revisit the notion of vice taxes. Ostensibly, an effective vice tax is one that raises revenue while discouraging bad behavior. Oftentimes, preventing such behaviors can lead to even more savings. Take the example of liquor taxes. Preventing people from drinking prevents alcohol-related crimes from occurring, allowing money that would have been spent on law enforcement, the courts, and the prison system to be used elsewhere.

The ideal vice tax, then, generates both direct and indirect revenue. But I think it does a disservice to their usefulness to define them so restrictively.

California, A Cautionary Tale?

The other day I linked to a Paul Krugman column on California’s budget crisis. In it, he uses California’s trouble raising revenue as a cautionary tale for the federal government.

Despite the economic slump, despite irresponsible policies that have doubled the state’s debt burden since Arnold Schwarzenegger became governor, California has immense human and financial resources. It should not be in fiscal crisis; it should not be on the verge of cutting essential public services and denying health coverage to almost a million children. But it is — and you have to wonder if California’s political paralysis foreshadows the future of the nation as a whole.

…

Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature. And this provision has interacted disastrously with state political trends.

While he admits, rightly, that California’s situation is not entirely analogous to that of the federal government’s, he does, in passing, hit on the most important hurdle of politics: It’s really hard to raise taxes. Yet, undisputably, tax dollars are going to have to pay for our lender-funded bailouts, wars and stimulus packages, sooner or later.

I heard Pennsylvania Gov. Ed Rendell (D) speak once at a transportation roundtable in Denver. He and the other politicians were talking about how to raise money for public works projects, and the gas tax (which funds the Federal Aid Highway Act) came up. Rep. Rosa DeLauro (D-Conn.), rightly, called any attempt by Congress to raise the gas tax “dead on arrival.”

Here was Rendell’s response:

Sin Taxes, or How to Raise Revenue Part I

Even those who subscribe wholeheartedly to Keynesian counter-cyclical government spending get a bit squeamish when it comes time for the government to actually, you know, spend. And there’s a reason for that. Federal programs, no matter how good of an idea they are at the time, rarely die off after their original mandate has run out.

Case in point: the Agriculture Adjustment Act. It was originally created during the New Deal to help control oversupply in the cotton market by literally paying farmers not to grow cotton (and other commodities) on their land. Well, mission accomplished. But farmers still see subsidies from this program (now the Agriculture Adjustment Agency), and, of course, even when it was needed, it went disproportionately to big landowners rather than the small farmers who needed it most. (That isn’t to say that the Agriculture Adjustment Agency doesn’t do useful things now, but the bottom line is, it’s awfully hard to take away a subsidy that may no longer be justified.)

When removing some of these New Deal era subsidies gets discussed, farmers, rightly, point out that without the subsidy, the drop in revenue will merely get passed on to the consumer. It’s self-perpetuating.

Now, we know that the Obama administration is going to start a lot of programs, and we know that they’re going to cost a lot. So, other than cutting costs in other areas (which, frankly, isn’t going to offset new spending no matter how often Obama says he’s going through the budget “line by line”) how is the government to pay for this?