Sin taxes - anyone but mine

By DAVID MOON, Moon Capital Management
June 10, 2007

In the last few years, the state of Tennessee has instituted pretty significant tax increases, but chances are you aren't paying them, and neither am I.

From a personal, selfish standpoint, those are the kinds of taxes I like.

Consider, for instance, the recent increase in the tax on cigarettes.

Studies suggest that 25.7 percent of Tennesseans smoke, and lower-income and less educated people are more likely to smoke than others. These are also the same people who are likely to buy lottery tickets regularly.

If you're reading this column, my guess is that you are neither among the poorest or least-educated of our citizens.

So congratulations. The additional 42 cents per pack cigarette tax and the $1 billion a year in Tennessee lottery revenues probably don't come out of your pocket, yet your kids may be getting college scholarships and your local system may get more state funding.

Robin Hood is rolling over in his grave.

Philosophically, these taxes have at least one appealing characteristic. They are completely voluntary. I don't pay these taxes because I've never bought either a cigarette or a lottery ticket.

Some legislators want a portion of the new cigarette tax revenue to be used to allow for a reduction in the sales tax on food items. That would be a double winner for me. I buy a ton of groceries.

Although Tennessee's new cigarette tax is relatively low compared to the rest of the country, tobacco is one of the highest-taxed retail products. Money is a powerful motivator, but not as powerful as nicotine. Increasing taxes on smoking and gambling is easy.

When you tax something, you tend to get less of it, as long as people are acting rationally. But it's the irrational folks who already spend money they can't afford on cigarettes and gambling.

Will it impact their behavior if those habits are a little more expensive?

My prediction: very, very little, if at all.

Talk to a psychologist, minister or parent of an adult child. Changing behavior is difficult and complicated. If fiscal policy could do it, then we ought to tax child abuse and larceny.

I don't mind benefiting from the largess of the people who pay these voluntary taxes. God knows that I already pay a lot more to the state than I receive in benefits, so this is a nice respite.

To me, this sort of system works just fine ' unless they decide to tax my bad habits.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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