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Tax Everything That’s Not a Social Good?

3 min readBy: Gerald Prante

On Monday, Senators Ted Kennedy and Orrin Hatch put forth a proposal to raise the federal cigarette taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. by 61 cents in order to finance a continuation and expansion of the SCHIP program. A Summary from CNSNews:

Two senators have proposed increasing the federal tax on tobacco to fund the reauthorization of a program that pays for children’s medical care, a move the tobacco industry says would be unfair and unreliable.

Sen. Ted Kennedy (D-Mass.) and Sen. Orrin Hatch (R-Utah) released a statement in June supporting an increase in the tobacco tax to fund the State Children’s Health Insurance Program (S-CHIP), which is due for reauthorization this year. Kennedy and Hatch were the original sponsors of the program when it was created in 1997.

Now to hear why cigarettes have no social value, courtesy again CNS:

Rick Kellerman, president of the AAFP (American Academy of Family Physicians) said the fairness argument against tobacco taxes “just doesn’t make any logical sense” because smokers engage in a habit “for which there is absolutely no social value.”

“If this was a tax on food or gasoline where people have to travel — you know, to get to their jobs and that sort of thing — I think that is an argument that we clearly need to think of,” Kellerman told Cybercast News Service.

“But on the other hand, tobacco is something for which there’s been absolutely zero social benefit, tremendous amounts of harm, tremendous amounts of suffering of families due to the illnesses of family members, so I disagree with that analysis,” he said.

The obvious question that comes up is what in the world does the term “social value” even mean in this context? Who decided that a paid spokesperson for a lobby that is going to benefit from more health spending is going to be the determinant of what constitutes a “social value?” Is there a social value from your buying an ice cream sundae from the local store? Was there a social value from your drinking that Starbucks Latte this morning or that frosty beer last night? Is there a social value from you reading this blog post? If not, should visits to this webpage be taxed to fund some other healthcare spending program, maybe to have a national campaign to reduce carpal tunnel syndrome?

If Kellerman is referring to the issue of the difference between social value and private value, he’s still way off base. Social value includes each person’s private value. Aren’t people part of society? There is a negative externalityAn externality, in economics terms, is a side effect or consequence of an activity that is not reflected in the cost of that activity, and not primarily borne by those directly involved in said activity. Externalities can be caused by either production or consumption of a good or service and can be positive or negative. from cigarettes, but that doesn’t mean they offer no social value. Nor does it mean that the net social value is not positive.

But suppose Kellerman’s view of the world was correct and that cigarettes were so bad that they truly offered no positive net social value – that the negative externality was so great, the net social value was negative. The logical course of action would be to just ban them, right? Oh…that’s right. We can’t do that because members of Kellerman’s organization wouldn’t then benefit from the funding from the extra tax revenue that way.