Scott Sumner  

Low hanging fruit and the inequality question

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Increasing economic inequality has become one of the trendy issues in economics, mostly for the wrong reasons. I've pointed out that inequality pundits tend to rely on income data, which doesn't measure what they assume it measures---economic inequality.
This discussion has led to lots of proposals that would do more harm than good, such as higher minimum wage rates and increased taxation of capital income.

None of this surprises me at all. But here's what does surprise me. There are lots of policy changes that:

1. Are highly desirable even apart from any impact on inequality

2. Would also substantially reduce economic inequality

3. And yet receive little or no discussion, even from the people most concerned about inequality.

In the past I've focused on two of those policy changes, legalizing drugs and dramatically lowering the tax rate on cigarettes. If you want to take an international perspective, then greatly increased immigration would be a third policy option.

Today I'll focus on another policy shift that would reduce inequality---sharply cutting the tax on lottery tickets, which now absorbs roughly 40% of all money gambled in state lotteries. Here are some points worth considering:

This floored me: Americans in the 43 states where lotteries are legal spent $70 billion on lotto games in 2014.

Seventy billion? I thought. No, that's impossible. That's more than $230 for every man, woman, and child in those states--or $300 for each adult.

But it's true: According to the North American Association of State and Provincial Lotteries, lotteries took in $70.1 billion in sales in the 2014 fiscal year. That's more than Americans in all 50 states spent on sports tickets, books, video games, movie tickets, and recorded music sales. . . .

Lotteries set aside about 40 percent of their ticket sales as state revenue that often goes to schools. Then, winners of more than $600 are subject to 45 percent windfall taxes on their good fortune. "The house" is winning, even when it's losing.

But it's the poor who are really losing. The poorest third of households buy half of all lotto tickets, according to a Duke University study in the 1980s, in part because lotteries are advertised most aggressively in poorer neighborhoods.


The phrase "in part" made me chuckle. It would be roughly like the claim that "far more men than women go deer hunting, in part because deer hunting rifles are advertised more aggressively in Field and Stream than Cosmopolitan. But let's put that aside, and focus on the economic issues.

Economists use the term 'inferior good' to refer to anything that is disproportionately purchased by the poor, such as cigarettes and lottery tickets. 'Luxury goods' are goods that are disproportionately purchased by the rich (even relative to income), such as large yachts and Ferraris.

Now let's consider two hypotheses. One theory is that the recent interest in inequality reflects a sincere desire to help the sort of people who spend lots of money on cigarettes and lottery tickets. The other hypothesis is that it's just a smokescreen, and the real agenda is to enact higher tax rates, with the money going to increased spending on high speed rail, fixing JFK airport, and "education." (I use scare quotes because the evidence suggests that, at the margin, increased spending helps teachers unions more than students.) How could we tell which hypothesis is true?

One approach would be to look at what we tax. The high taxes on cigarettes are sometimes justified on externality grounds, but economists who have studied the issue say the tax is far too high based on "second hand smoke" externalities. And I can't even imagine an externality argument against a market that basically sells hope to people---lottery tickets. The War of Drugs has chosen to focus most heavily on the supply side of the market, which just so happens to be disproportionately made up of poor and minorities, relative to the demand side of the drug market.

We did have a tax on luxury goods, which seems like a really good idea if you are worried about inequality. But then the tax was repealed. And the reason it was repealed is especially interesting---it was successful:

But it wasn't long before even these die-hard class warriors noticed they'd badly missed their mark. The taxes took in $97 million less in their first year than had been projected -- for the simple reason that people were buying a lot fewer of these goods. Boat building, a key industry in Messrs. Mitchell and Kennedy's home states of Maine and Massachusetts, was particularly hard hit. Yacht retailers reported a 77% drop in sales that year, while boat builders estimated layoffs at 25,000. With bipartisan support, all but the car tax was repealed in 1993, and in 1996 Congress voted to phase that out too. January 1 was disappearance day.
So the tax was a huge success, which reduced the only kind of inequality that matters, consumption inequality. But apparently some progressives who supported the tax had hoped that it could raise lots of revenue for the government without actually depressing the living standards of America's rich. That would occur, of course, only if the rich maintained their living standards by donating less money to charity and investing less money in new capital formation. Instead, the rich actually did reduce their living standards, and America was on the road to greater economic equality. Senator Kennedy, et al, reacted in shock and horror and had the bill repealed. Meanwhile Massachusetts is among the leaders in taxing the poor via the lottery and cigarettes.

And I haven't even mentioned the environmental externalities of 400-foot yachts and private jets, which are probably many times worse than second hand smoke.

Some misguided people want to help the poor by banning state lotteries. But that would make things even worse. Buyers would have to rely on the black market, or drive all the way to New Hampshire or Rhode Island to buy their tickets. The solution is simple, cut the state's take from 40% to 10%, and make up the lost revenue through higher sales and property taxes, where the burden is shared more fairly across all of society. And bring back the luxury tax on yachts and private jets.

PS. I do realize that my proposal to tax luxury goods will generate a lot of opposition. I'm actually not sure if any luxury tax is desirable. It's difficult to enforce. Rather I'm trying to provoke a different way of thinking about inequality. It's consumption inequality that matters. If you are not reducing the output of the yacht and private jet industry, then you are doing precisely NOTHING to reduce economic inequality. As long as we tax inferior goods at absurdly high rates, and have bi-partisan support for repeal of high tax rates on luxury goods, then we are not really having a national debate about inequality.

I'm not sure what the debate is actually about. Some people may have a hidden agenda. Some people may have pure motives, and simply be confused. But I see no one in either party going after those low hanging fruit. That makes me think that whatever is done to address inequality will either have a hidden agenda (high speed rail, education, etc.), or be mostly ineffective due to economic illiteracy.

PPS. Some people advocate high lottery and cigarette taxes by claiming they are "voluntary." Put aside the rather strange use of the term 'voluntary.' Even if it were true, it would be an argument against taxing these goods. Any fair tax should apply to everyone, not merely to the subset of people who choose to buy a particular good---especially if they are disproportionately poor.


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CATEGORIES: Income Distribution




COMMENTS (43 to date)
LD Bottorff writes:

Excellent post. Personally, I don't care about inequality; I think it is a bogey-man that politicians use to justify more interference in the market.

Another tactic that would reduce inequality would be to stop encouraging poor people to take out student loans for an education that they won't complete. It's bad enough that college grads are saddled with debt, but college drop-outs are really in bad shape; they have to pay back loans for a degree they didn't get. They may make as much as the worker sitting next to them but they sure can't consume as much; they have a loan to pay back.

Jared writes:

I've always seen it the other way. Look at the estate tax. It doesn't raise much money but progressives support it just because they think it reduces inequality.

BRL writes:

I've been following these Sumner posts on inequality, and they're generally very interesting and touch on new things, and thus very good posts to learn from. The framing has been bothering me though - they feel cut off from the larger conversation on these issues. I'm pretty sure a large subset of liberals (Yglesian liberals?) and some conservatives (reform conservatives) are thinking along these lines, although on the liberal side the concern with inequality is more accepted than with Sumner... so I'm not sure why these posts are being presented as being iconoclastic? It would be more interesting if they engaged directly with the people who care about these issues and are trying to work through them, rather than seeming aimed at people who don't care (or who care but who are totally uninformed) and to whom an idea like stopping the War on Drugs and lowering sin taxes is prima facie anathema. I'm probably being overoptimistic about the % of people in each party who are open to these ideas, but still why not engage with those with whom an interesting discussion is possible?

MichaelT writes:

Wouldn't the ideal solution be allowing private companies to run lotteries? The only reason the government can tax lotto tickets at 40% is because they have a monopoly. A private lottery would probably be pretty cheap to run, so competition would drive the profit margin down, making it a better deal for people playing.

Trevor Vossberg writes:

All of those proposals are great except they are likely politically unpopular. Lotteries are popular, we can't talk about luxury taxes because that is soaking the rich, and smoking is really unpopular.

I think that the argument for hypocrisy here is too easily applied. It's easy to ding libertarians with. Keep in mind groups tend to talk about things that are talked about and controversial, not necessarily what the best policies are.

The Original CC writes:

Are you sure the yacht tax was a success?

Let's imagine a world in which rich people like to buy precious stones. Congress comes along and puts a huge tax on sapphires. The result is that people stop buying sapphires and buy emeralds instead (and the tax collects no revenue).

Have you really reduced inequality?

In other words, in the case of yachts, didn't rich people just spend more money on bigger houses, fancy vacations, etc. and avoid things that were subject to the new tax? Or am I missing something?

MG writes:

I doubt Progressives will bite on your proposal to deprive the state of all that lottery tax revenue. However, they could restructure the winner-takes-all payout of lotteries so that they do not increase inequality as much. For example, instead of just having one Power Ball winner taking $100M, they would have, say, 1M "winners" taking $100. (Tongue firmly planted in cheek.)

Floccina writes:
(I use scare quotes because the evidence suggests that, at the margin, increased spending helps teachers unions more than students.)

Mostly it seems to help would be school administrators and clerks.

People seem to think that better schools can change things far beyond what the evidence shows they can change.

Scott Sumner writes:

LD, Good point about student loans.

Jared, Good point. There is no consistency here.

Michael, I agree.

Trevor, You said:

"All of those proposals are great except they are likely politically unpopular. Lotteries are popular, we can't talk about luxury taxes because that is soaking the rich, and smoking is really unpopular."

Sorry, but you lost me. If lotteries are popular, and smoking is unpopular, then why is cutting the tax on each activity unpopular? By your logic, a tax cut on lotteries should be popular.

CC, Fair point, but unless they are perfect substitutes, then you'd expect some effect. Of course if you were serious about inequality then you'd also have a progressive property tax, with a higher rate on big houses. Ditto for hotel rooms, a higher rate at the 4 Seasons. But we aren't serious about inequality---there is some other agenda that I haven't been able to figure out.

MG, How about 100 winners taking $1,000,000 each?

Scott Sumner writes:

Floccina, I agree.

Seth writes:

I may be mis-remembering, but I thought the yacht tax shifted yacht building to other states and caused the Senators to feel a direct impact of the unintended consequence of the tax: 25,000 lost jobs (some who vote and know people who vote) in their states.

Suddenly, the luxury tax was hurting the poor and middle class. What do they say about rising tides (bad pun)? That works the other way, too.

Floccina writes:

It has always seemed to me that the modern USA democrat does not care so much for the poor but rather is a blank slate believer who believes that through education, drug rehab, kind words, free money he can turn the poor into middle class people. He thinks:

  • Single parenthood and lack of marriage among the poor is due to low jobs prospects for poor men.
  • Poor performance of poor children is schools means we need to spend more money on schools.
  • Poor people use to much drugs, they need treatment (at least they do not believe that they need stronger drug laws with harsher punishment!)
  • Poor areas are sloppy, it must be that the residents are too busy working making money to clean up so raise the minimum wage.
  • Poor buy to many lottery tickets counseling.
  • Etc.

I am more likely to say poor USAers live as they like and I am OK with that. If they think it better to enjoy their youth and not study boring stuff so as to latter get a boring job, I do not think is a duty for me to convince them otherwise.

They are Control we are Chaos.

Chris writes:

The general argument that I've heard for cigarette taxes is more nanny state than "voluntary". High taxes are helping the poor by convincing them not to smoke, etc.

I'm not in full moral agreement with this argument, but it's hard to argue that it hasn't worked by that metric (unless the claim is that the even more nanny state policy of banning smoking everywhere convenient is the sole cause of decline).

Econymous writes:

This is heresy in the Econ world, but it is certainly possible that, on utilitarian grounds, taxing cigarettes would be socially beneficial even if the tax exceeds the external cost.

Plenty of smokers are addicts who wish they could quit and wish they'd never started. Maybe present-biased dynamic inconsistency is the right economic model for this behavior, in which case standard micro theory is a poor framework for evaluating the desirability of the sorts of taxes you're discussing.

Alfred writes:

Scott,

Have you weighed in yet on Charlie Baker proposing to raise the earned income tax refund for low-income families and fund it by eliminating the MA film production tax credit? It's a somewhat similar situation as with the luxury tax you described above, where a republican governor tries to decrease income inequality but the "progressive" democratic government blocks it in exchange for middle class jobs.

Politics is all about interest groups.

Tiago writes:

Brilliant post. Someone should make a list of all policy changes which would increase economic efficiency and decrease inequality.
I have a few more candidates:
- intellectual property reform
- impose 100% reserves on banks (as Cochrane defends)
- do away with building restrictions
- deregulate professions
There isn't a equity vs. efficiency divide right now. We are well below the frontier in that regard. What actually exists is a general vs special interest conflict.

NZ writes:

@Floccina:

Increasingly, Democrats don't actually see single parenthood as a problem at all. Instead it's a badge of honor, an emblem of the "modern working woman." Single moms are hailed for their bravery and strength as if they were soldiers, rather than people with weak morals and decision-making skills. Democrats don't want to end or reduce single-parenthood, they want to make it easier, less costly, and more appealing.

Democrats invented the war on drugs and while Neocons picked up the baton with much fanfare in the mid-20th century and carried it since then, Dems are still consistently avid proponents of it. Don't be fooled by their reformist lip service.

Democrats also think that if poor areas are "sloppy" it just means they need more "access to resources" (i.e. more of other people's money). Especially if it means those areas can eventually be cleaned up, gentrified, and then the poor people who live there can be pushed out into exurbs where the resulting racial conflicts can be blamed on the white people who live there. (E.g. Ferguson.)

By the way, I disagree with your final statement. Even if I didn't have to later support those poor people through welfare, I still have to live with them. They are in my city, in my suburb, sharing my roads, my grocery stores, my kid's schools, my restaurants, my parks, my sports arenas and public events. I accept that I will share these with poor people, but I'd rather share them with poor people who have some sense of decency, civic pride, and basic numeracy and literacy. If that means I have a duty to try to convince them that they should acquire these things (things which also tend to result in employment), then I'm okay with that. If there's such thing as noblesse oblige, that must be it. (Didn't Charles Murray write a book somewhat to this effect a few years ago...?)

Kevin Erdmann writes:

But, when the windfall tax is applied, the household is no longer poor. And the added profitability to the state should be causing the supply curve of lottery games to shift out, increasing supply. So, the winners, who are now rich, get taxed, and the losers have more supply of hope to purchase.

I think I actually have a decent point here, but, somehow, I'm afraid that we're into BAHFest territory here.

JH writes:

If the government reduced its take on the lottery (either by increasing the pot or lowering the ticket cost), I'm not sure I buy that the amount spent by the poor on lottery tickets would change.
I don't think people think of lottery tickets in terms of quantity, but rather, they think in terms of "how many I can afford".Someone who buys $5 worth of lottery tickets every week is still going to buy $5 worth of lottery tickets. But now the 30% dumped by the government just goes to one person.

I get how this would work with cigarettes, I just don think the psychology behind purchasing lottery tickets (which is pretty bizarre to begin with), follows the same logic.

Floccina writes:

I have a relative who is a democrat and is openly against the rich and the poor. He is for very high taxes on the rich even if they do not bring in significant money and he is against the level of welfare that we already have. Judging by how much the Democrats like to say they want to help the middle class I think this kind of think might be common. BTW The working poor that I know seem to hate welfare more than rich republicans.

NZ writes:

Oops! Erratum: In my previous comment I was largely conflating "Democrats" with "white liberals."

Roger writes:

It might be useful to consider the state as something other than an individual. It is an organization composed of millions of competing interests.

In some cases, the various interests roughly align within a particular party (or even across parties). For example, some interest groups are seeking power which comes from having greater control of resources. Others are seeking redistribution for themselves. Others are seeking to harm their political enemies. Still others are seeking a world vision of equality of outcome. And so on.

When the various interest groups line up reasonably well behind an endeavor, it gains political momentum. And vice versa.

Reducing cigarette taxes, taxing yachts and eliminating lotteries are areas where the interest groups on the left are not well aligned.

david condon writes:

I would agree with the economic illiteracy claim as likely being a major barrier. The main thing I've seen suggested is a millionaire's income tax rate which strikes me as a terrible way to reduce inequality. An even worse way that I see a lot of is labor market regulations.

The thing about cigarettes and lotteries is that they both fly in the face of liberal dogma. I think at the core of the liberal identity is that many people are unjustly injured by environmental factors outside of their control. Cigarette and gambling addictions are very much in people's control to stop. Examining them forces liberals to confront flaws in their reasoning which they are want to do.

I think that's why you'll have more luck with immigration reform than anything which liberals generally support.

Levi Russell writes:

I wouldn't want to be one of the 25,000 families whose breadwinner was suddenly out of a job. If "free-market" economists think this sort of thing is okay given that it may reduce inequality (whatever that is), I'd hate to read what the non-free-market types would say.

Chuck writes:

Reducing the "tax" on lottery tickets is a sound idea, but it will almost certainly not have a meaningful impact on income inequality. It is what I call a small step in the right direction, which beats increasing the minimum wage which is a small step in the wrong direction.
In terms of having a meaningul impact on inequality of economic well-being, legalizing drugs would have a much bigger deal since it can increase the safety of poorer neighborhoods.

Richard writes:
Some misguided people want to help the poor by banning state lotteries. But that would make things even worse. Buyers would have to rely on the black market, or drive all the way to New Hampshire or Rhode Island to buy their tickets.
.

I doubt it. I've made a lot of impulse buys of lottery tickets, but I would never in a million years drive to another state or find a black market to gamble.

There's an easy way to test this assertion. Do people in states without lotteries end up spending just as much on gambling? I bet not.

The "they're going to get it anyway" argument allows one to be consistent with libertarian ideology, but it completely ignores issues of convenience and human nature.

Rajat writes:

Scott, I think if you did another 'tour' of Australia, your views on tax and inequality would be more controversial than your views on central banking.

Australia has one of the highest cigarette taxes in the world. I'm not a smoker, but I think a pack of 20 now costs about $A20. The high rates are largely justified on paternalistic grounds (like how Econymous puts it) and also to some extent on externality grounds (eg to protect children and save taxpayers through our universal healthcare scheme, 'Medicare').

We also used to have varying rates of wholesale sales tax, loosely-based on equity grounds - jewelry and some other 'luxuries' was taxed at a higher rate than clothes. Interestingly, it was the Treasury who argued strongly for the WST to be replaced by a uniform rate GST. The main arguments for a GST were (i) that it would simplify the tax system - people wouldn't have to worry about how a good should be classified and (ii) broadening the base (because the GST includes prepared food and many services).

KLO writes:

Given that a very small fraction of lottery purchasers are net winners, does increasing the size of the pot for winners reduce inequality or increase it? It is obvious that, for the very large jackpot lotteries, increasing the winners' take increases inequality, because the number of losers and winners remains the same while the amount the winners take is larger. On the other hand, smaller prize amounts are more broadly distributed, so it is conceivable that reducing the state's take could reduce the amount the typical small prize lottery player loses. If, however, the typical lottery player who wins small amounts plows the winnings back into the lottery, there really is no benefit to the typical player.

Michael Byrnes writes:

Eliminating the government's 40% take on the lottery would raise jackpots.

In today's lotteries, with the government taking 40%, jackpots rise when there is a week (or several weeks) without a winner. And when this happens, more tickets are sold, and the average return on a lottery ticket stays about the same - because with higher jackpot comes higher ticket sales and a greater likelihood that a winner will have to share the pot.

Whether or not the government should take a cut, it's not clear that this affects the amount of money that people would lose on the lottery.

Shayne Cook writes:

Scott:

Your suggestions of un-taxing various things to promote decreased inequality and support economic growth is interesting and compelling. I have 2 more suggested candidates for un-taxing ...

1.) Medical expenses - including paid health insurance premiums as well as actual incurred medical expenses such as insurance deductible amounts/co-pays. Currently both are paid (by every individual) out of post-taxed income. I'd recommend individuals be allowed to reduce their gross income by the amounts actually paid (on the bottom half of page one of the 1040 - Adjustments to Gross Income) - just as businesses are now allowed to reduce their gross incomes by the amounts of health insurance premiums they pay on behalf of individuals. Any reason individuals should have a more penalized treatment in tax law than businesses?

2.) Qualified dividends and long term capital gains*. Piketty, et. al., suggest taxing the "rich" to offset the alleged inequality of capital income. Where is the suggestion to un-tax capital incomes for lower income folks in order to incentivize them (or at least not penalize them) for becoming capital owners?

* U.S. Federal Tax law was modified in the late 2011 "compromise" to un-tax long term capital gains and qualified dividend income for the first two tax brackets (10% and 15% - about $36,000 total gross income). That feature was retained in the Jan 1, 2013 tax bill.

But both un-taxing recommendations should be extended to at least the first 3 tax brackets - to about $86,000 income level. (I doubt anyone would consider an annual income of $86,000 for a single breadwinner qualifies as "rich" in the U.S. anymore.)

Mike W writes:

"It's consumption inequality that matters."

So are we now accepting that inequality...income or consumption...has reached a level where it matters? And that level is defined by the ability to buy yachts?

Nathan W writes:

Instead of a tax on luxury goods, how about a higher sales tax with more exclusions for goods which can be considered as essential.

Scott Sumner writes:

Seth, It was a national tax. The whole point should have been to lose jobs in the yacht building industry. The fact that this was an "unintended consequence" as you correctly note, says volumes about the ignorance surrounding the inequality issue.

Chris and Econymous, Maybe, but you are also impoverishing smokers, which clearly does not help the poor.

And let's say the paternalists are correct. Aren't they some of the same people who say "don't blame the victim?" Are the poor so foolish that they need us to tell them how to run their lives? (I say no.)

Alfred, Good point.

Tiago, I agree.

JH, Even if you are correct, and the amount purchased was exactly the same, the tax would be lower, and hence consumption of the poor would rise.

But you are not correct, studies show the amount of lottery tickets purchased depends on the payout. Rational expectations models explain the market very well.

Levi, 100,000s of jobs were lost when we automated telephone networks, and fired telephone operators. Was that a bad decision?

Chuck, I agree.

Richard, I never claimed people would gamble exactly as much, indeed I agree they would not. But it would greatly raise costs for those who did continue to gamble, that was my point.

Rajat, Many economists have pointed out that the "externality" argument for cigarette taxes is wrong.

KLO, The main product being sold is "hope" not winnings.

Shayne, I oppose all taxes on capital income. I oppose medical tax deductions, as they cause overuse of medical services.

Mike, Yes.

Mike W writes:

Oh, OK, I'm convinced...I'll begin crusading against inequality immediately.

Levi Russell writes:

Scott,

You said:

Levi, 100,000s of jobs were lost when we automated telephone networks, and fired telephone operators. Was that a bad decision?

I have no problem with the automation of phone lines, but capital accumulation and improvements in technology are categorically different from increased taxes on goods.

The disemployment effects themselves aren't the issue, it's the cause of the disemployment that can be problematic. Taxation destroys wealth; capital accumulation and technological innovation increase wealth.

Automation of telephone lines at least has the ability to lower costs, thus improving the productive capacity (and employment prospects) of the economy. The same cannot be said for shutting down boat factories by legislative fiat.

Peter writes:

Just came across this:
Tom Schelling et al.: Criteria for determining an optimal cigarette tax: the economist's perspective. Tobacco Control, Winter 1995, Vol. 4, No 4, 380-86

Free download:
http://tobaccocontrol.bmj.com/content/4/4/380.full.pdf

Seth writes:

Ah yes. Thank you. I did mis-remember that. It shifted boat building overseas, not to other states. I also believe the recession played a factor.

Albigensian writes:

What attracts people to spend money on lottery tickets is not the odds of winning or the expected value, but the size of the grand prize.

Lottery designers have learned to throw in many very small prizes because this creates that "near miss" sensation, and keeps the suckers playing.

I don't see how increasing the expected value is going to change this behavior or reduce losses; rather, I'd expect that more payouts and/or larger grand prizes will induce more sales.

Since any house edge at all is nearly certain to produce losses for repeat players over the long term (except for that nearly infinitesimal fraction who win a grand prize), the result will be more losers, more losses, but also a few more big winners.

So how does this "reduce inequality"?

myb6 writes:

"the only kind of inequality that matters, consumption inequality"

This is just a statement of personal values, with no objective reasoning backing it. I love your money posts, but this is getting so old and so frustrating, particularly as you treat your statement as objective fact to insinuate against your opponents' motivations. This is not a productive way to debate.

Everything becomes so much easier to understand if you accept that the people you're arguing with DO NOT share the personal value statement above.

TH writes:

To redefine the inequality issue as merely consumption inequality is ridiculous. Of course, that's how it may express itself. But it is caused by income and wealth inequality.

And you also implicitly reframe this as a poor vs upper middle class debate. But of course anyone paying any attention to the data knows that the inequality issue that is being debated is driven by the relative income and wealth gains of the extremely rich - people making 10s of millions and more. Not even the top 1% - but the top 0.1%.

Your proposals may slightly ameliorate the plight of the poor relative to the upper middle class - they do nothing to address the real inequality problem - at least not how it is properly understood. Unless you don't think it's a problem that almost all growth gains go to a very, very select few.

Hugo writes:

What evidence suggests that more spending benefits unions and not students?

glasnost writes:

[Comment removed for supplying false email address. Email the webmaster@econlib.org to request restoring your comment privileges. We'd be happy to publish your comment. However, a valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

This post fails Occam's razor on a pretty fundamental level, at least in regards to its contention of ulterior or confused motives on the part of progressives. It is also remarkably uncharitable, a fact which in this case is not simply a moral failing but also an epistemic one. Rather than look at some sinister conspiracy, it is far simpler to conclude that progressives are convinced that despite its regressive nature, it makes the most sense to get your tax revenue from something you want to discourage rather than productive industry. We want less smoking and gambling, ergo, raise taxes on smoking and gambling. Econ 101 stuff. The desire to limit smoking and gambling is a combination of paternalism and your standard internalize the externalities policy making, neither of which is surprising coming from progressives. There's absolutely no need to posit sinister motives.

My own take on the matter is that the lotto tax really is just paternalism - not even good paternalism since, as you say, they're actually selling hope, not an investment vehicle - and you've made a pretty good case for why progressives should oppose them. On the other hand, you missed the biggest externality of them all in regards to cigarette smoking - the fact that the tax payer is probably on the hook in some way, shape, or form for the increased health care costs. I also think the paternalistic argument is much stronger in the case of cigarettes - most people who start smoking really want to quit pretty soon after starting, but can't, and it pretty negatively affects their lives. If there were ever a case where the government really ought to save us from ourselves (and to be clear, I'm not endorsing this argument, merely noting that on its own terms it's strong), it's with cigarette smoking.

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