Sunday, December 14, 2008

How to Make the Healthcare Problem Easier: Raise Sin Taxes

I've said before that you need tax revenue to run a country. We usually only hear about two ways to control this when there are at least three. The first two are

1) What you spend it on

2) How much you tax

And the third is

3) What you tax

I wish #3 would have a greater role in health care policy discussions in the U.S.

The solution is not to nationalize American healthcare, which I've written about before. Our Kafkaesque tax code is in any event already in dire need of a real overhaul to organize it clearly according to modern principles and, by ironing out the labyrinthe, leveling the playing field for the middle class by removing at least some loopholes. I've also said before that it's foolish to tax income, because by doing this, you necessarily disincentivize earning money (or you incentivize earning money and cheating). Earning money is a good thing; so why not tax bad things instead? Pollution, waste - and unhealthy behavior. In whatever cases we can, when the government has to spend money on human-created problems, we should localize the expense to the people creating those problems.

Lee Kwan Yew, while I can't accuse him of being democratic, did something right: his long administration in Singapore turned a postcolonial swamp into the Switzerland of Southeast Asia in mere decades; to put this in perspective, today it's often said that Dubai is the Singapore of the Gulf. Only now is Malaysia catching up, although they've insisted on setting other challenges for themselves that Singapore wisely avoided. How did Singapore do it? One method that I find admirable is focusing revenue collection on fines, rather than on income. Wouldn't you rather your government take money from people who were misbehaving than people behaving successfully (by making money)? It's here that I'll get the first outcries of "social engineering!" from the more fundamentalist of my fellow libertarians - and of course, that's exactly what it is. News flash: the purpose of law is to change behavior. That's why we levy fines or put people in jail for doing bad things.

One of my problems with any kind of nationalized healthcare is that invariably, you end up paying for someone else's bad habits. Why should you be on the hook for my lung cancer treatment when I've chosen to smoke my whole life? Or even stickier, what if I have some inherited disorder - not my fault, but certainly not yours either. That's why you can help support the American healthcare system - and encourage a healthy America - by sin taxes. For example:

- Cigarettes - if it's possible to tax them further.

- Alcohol - I'm probably in the top quarter of American beer and wine drinkers, and I would pay more. Non-drinkers don't owe drinkers treatments related to their beer guts and liver damage.

- Junk food - again, I bet I eat at Taco Bell more than you do, so this definitely hits me. Why allow the government this power, you ask? They have to get money from somewhere - would you rather it be straight from your employer to penalize you for making money as they now do, or on top of your receipt at Jack in the Box, where you can decide to go somewhere else?

- Legalize and tax marijuana - Have you ever seen the estimates for what this would bring in? Extrapolating the numbers in this study, we're talking about $25 billion in combined annual revenues and savings.

Optimistically, this reform may be the beginning of a simpler consumption-based Federal tax system that encourages savings and growth rather than consumption. (Have you seen American saving rates recently? Courtesy captaincapitalism.) Another tax incentive I'd like to see is a way to translate savings rates into flash and status to get people to do it more. This is a problem that Robert Frank identified.

Remember that Capitalism and Freedom author Milton Friedman is the one who masterminded tax withholding; if that's not (good) social engineering, then what is?

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