Tax Collector for the Nanny State

Franklin Delano Roosevelt, a hero of both President Clinton and House Speaker Newt Gingrich, campaigned for the presidency in 1932 on a platform plank promising to repeal Prohibition.

Income tax receipts had shrunk dramatically during the Great Depression and the federal government was desperate for the revenue a tax on legal liquor sales would raise. A policy wonk of that era was prompted to observe that the Democratic Party’s economic recovery plan seemed to be based on the hope that if only given a chance, Americans would drink themselves into a balanced budget.

Fast forward to Hillary Rodham Clinton’s testimony before the House Ways and Means Committee in September 1993, when the first lady discussed the administration’s proposal to help fund health-care reform by taxing cigarettes to the tune of $105 billion over 5 years.

When asked what would happen if revenues from cigarette taxes declined, Mrs. Clinton responded, “If there is a way that you can ever come up with to tax substances like [caffeine, cholesterol, salt, sugar, and alcohol], we will be glad to look at it.”

Like FDR before her, Mrs. Clinton was chiefly interested in the revenue-raising potential of substantially higher federal excise taxes. But her proposal was characteristic of a growing number of social engineers who advocate manipulating tax policy to discourage politically incorrect lifestyles.

Soulcraft has again found a friend in statecraft. The tax collector for the welfare state has become a scold who wants to stop people from smoking too much by taxing tobacco, from drinking too much by taxing liquor, from using too much energy by taxing gasoline, and from being too productive by taxing the “rich.”

To rationalize their coercive preferences, these neo-Puritans charge that consumers do not bear the full costs of their unhealthy choices, but instead impose costs on the rest of society. These “social costs,” they claim, are not limited to physical harm done to other persons or property, or even to by-products of traditional vices like smoking, drinking, and gambling.

Instead, the neo-Puritans have inflated the concept of social costs to include the alleged spillover harms from cooking outdoors, wearing perfume, eating snack foods, drinking carbonated soft drinks, driving expensive cars or yachts, bearing arms, and any other behavior that can remotely be linked to ill health or environmental harm.

The mix of social cost economics and neo-Puritan political correctness is a potent brew, as debilitating as it is addictive. Without blushing, the neo-Puritans act as if the consumer’s produce belongs to the government, and as if he cheats the tax collector by going to an early grave. Some claim, for instance, that consumers of movie popcorn impose social costs by not paying their “fair share” of future taxes if they die prematurely because of the fat and salt added to their diets.

To help align consumers’ private costs more closely with social costs, neo-Puritans call for government intervention through selective taxation. Short of banning consumption outright, a selective excise tax on politically incorrect behavior raises the objectionable product’s price, which discourages its consumption.

Moreover, the incorrigible individuals who continue to buy at the higher after-tax prices are thereby forced to help pay for the costs they allegedly impose on society.

But “selective” excise taxes are selective only in taxing products — they are indiscriminate in taxing consumers. Individuals who use politically incorrect products in moderation face the same marginal tax rate as those who abuse them. The vast majority of responsible drinkers, for example, are punished to pay for the external costs generated by a comparative handful of dipsomaniacs.

Though often allied politically, the goals of neo-Puritans and tax enhancers conflict. The tax rate that is high enough to reduce consumption to tolerable levels or to eliminate it altogether also produces little or no revenue for the treasury.

Consequently, government policy toward illicit drugs and alcohol has been locked into a regulatory cycle of tax and taboo: Moral indignation leads to prohibition, which provides psychic benefits to repentant souls on Sunday morning and monetary benefits to the bootleggers who supply liquor to their weaker flesh on Saturday night. The gangsterism and widespread disobedience of the law — not to mention the shrinking tax base — that predictably follow bring calls for repeal and the cycle begins anew.

As the FDR and Clinton examples indicate, the tension between prohibition and tax maximization is an enduring theme in American politics. Is it somehow “better” to ban the possession and sale of certain substances outright, thereby shifting transactions to the underground economy? Or should transactions involving these substances be legalized and taxed? The popularity of casino gambling and state-run lotteries suggests that government is not above promoting “vice” when tax receipts run low.

Twenty years ago, the Federal Trade Commission was labeled the “national nanny” for attempting to regulate the advertising of children’s cereals. Media commentators were properly scornful of the idea that a government agency is competent to lecture parents on what they ought to let their kids eat for breakfast.

But the arrogance of Jimmy Carter’s FTC pales in comparison to the nearly hysterical propaganda of today’s lifestyle police, who demand that government legislate a smoke-free, fat-free, caffeine-free, gun free, politically correct society, never mind the individual freedoms that must be sacrificed in the process.