Don't Mess With Taxes
- posted by Jim Leitzel @ 6:10 PM

Remember Texas's "pole tax," the $5 per customer fee applied to strip clubs in January? Turns out that a state judge has ruled the tax to be a violation of the First Amendment. The Attorney General intends to devote more public funds to appealing the ruling, while other supporters of the tax are investigating reforms to the legislation that would help it pass constitutional muster. (Incidentally, I haven't read the court opinion, but I am surprised that a case decided on free speech grounds also seems to hinge (if the published reports are correct) on the earmarking of the revenues from the tax.)

In unrelated news, via Pete at Drug WarRant we learn of a wonderful series of videos concerning heroin. The presenter is Michael Jourdan, a leading Danish drug researcher. Heroin (like methamphetamine) is a word that for many people is so evocative of danger as to preclude marshaling facts or reasoning about policy. Jourdan provides the facts, and some fine reasoning along the way, too.

Labels: dancing, Drug WarRant, heroin, taxes, Texas

 
British Pubs Suffering
- posted by Jim Leitzel @ 10:54 PM

It's not just bingo that is being hurt by the British smoking ban. The pub industry has been weathering some hard times, no doubt worsened (to an unknown degree) by the smoking ban: "According to the British Beer and Pubs Association, the smoking ban in England and Wales combined with the credit crunch and a decline in drinking are responsible for closing pubs at their fastest rate in history – 27 a week."

Meanwhile, the Chancellor of the Exchequer, Alistair Darling, wants to raise the tax on alcoholic beverages. This has made him persona non grata at many a British pub -- the campaign to keep Mr. Darling out of pubs is being championed by some of those bloggers on the internets.

Maybe British pubs could try that theatre dodge to avoid the smoking ban? Or maybe things will soon smooth out, despite the smoking ban. There even looks to be some good news for British bingo. Photos of a spiffy (sort of) bingo parlour, including its outside smoking and gambling areas, are available here.

Labels: alcohol, bingo, Britain, smoking ban, taxes

 
WHO's Tobacco Message
- posted by Jim Leitzel @ 10:39 PM

A couple weeks ago the World Health Organization issued a new report on the "Global Tobacco Epidemic" and what steps to implement to counter it. The toll that tobacco takes (and will continue to take in the future) on health is staggering, with more than 5 million tobacco-related deaths annually, supplemented by the threat that the tab will rise to more than 8 million by 2030. The cumulative impact over the course of the 21st century, according to the WHO, will be hundreds of millions of deaths, and (if that is not sufficient), the toll could be an attention-grabbing 1 billion tobacco-related deaths. (There are more than one billion smokers currently on planet earth.) Today, the New York Times picked up on the WHO report in a special Week in Review graphic, following an editorial earlier in the week calling for the US to submit the 2005 Tobacco Control Convention to the Senate for ratification.

The WHO offers six policies (read about them in this 19-page pdf) to try to stem the tobacco health cataclysm. My concern, of course, is that at least two of the WHO's suggested policies -- public smoking bans and high tobacco taxes -- do not meet standard Vice Squad precepts. (The higher taxes might be OK if the starting point is low.) Eventually, as I note in Chapter 3 of Regulating Vice, harm minimization (or health maximization) and vice policy robustness must always part company. Robustness accepts that there might be benefits available from vice consumption, but a strict harm minimization strategy ignores these putative benefits. There should be limits on how much an adult who chooses to smoke (or drink, or gamble, or sell/buy sex, or...) should be punished or inconvenienced, in the absence of harm to others.

Labels: Regulating Vice, robustness, smoking ban, taxes, tobacco, WHO

 
The End of an Era
- posted by Jim Leitzel @ 12:21 AM

OK, maybe not an era. More like a streak. Every day in 2008, Vice Squad had produced one (and precisely one) post for you, faithful reader. Until Monday, February 18, 2008. On that day, well, indolence reigned supreme. But...but..."this inconstancy is such/As you too shall adore". Maybe. Vice Squad was delayed, having met a visitor to Chicago who is here precisely to clarify the issues surrounding the taxation of alcohol and tobacco (here's a 26-page pdf). I wonder what he thinks about taxing cocaine? Not sure yet, but after our visitor presents his paper on Wednesday, perhaps I will have learned enough to say something.

Those who are concerned that taxing illicit drugs might somehow make them more legitimate might have a point, incidentally.

Labels: alcohol, solipsism, taxes, tobacco

 
Outlawing Volume Discounts For Alcohol
- posted by Jim Leitzel @ 5:28 PM

A few years ago, the impending entry of Estonia into the European Union led Finland to pre-emptively lower its traditionally high alcohol taxes. One result was a sharp rise in alcohol-related problems. This year, Estonia raised its own alcohol taxes, so Finland felt that it had scope to do the same thing. When the tax rise went into effect on January 1, other new alcohol rules also were adopted, including the abolition of cheaper per-unit prices for larger purchases of alcohol (so that a bottle of wine cannot sell at a restaurant for less than the equivalent amount of per-glass purchases). Vice Squad had suggested months ago that the response to such a rule might be a fall in the price of the smaller units, instead of a rise in the price of the larger units -- and that is what seems to have happened:

In an effort to raise the prices of beer sold in crates and cardboard packs, the government introduced a regulation at the beginning of the year saying the price of a bottle or can of beer sold as part of such a pack could not be lower than that of cans or bottles sold singly.

The result was a fall in the price of beer sold by the bottle and can.

So the Finns are talking about raising the beer tax some more, to make sure that effective retail prices are higher, not lower, than before the no-volume-discount regulation.

Labels: alcohol, Finland, taxes

 
Saving Lives via Alcohol Taxes
- posted by Jim Leitzel @ 1:18 PM

Like Phil Cook, I favor higher alcohol taxes in the US. In Phil's book, Paying the Tab, he reviews the evidence on alcohol prices and overall mortality. Based on that review, his best guess is rather startling: "...if Congress doubled the beer tax and raised the taxes on wine and liquor by a similar amount, one result would be tens of thousands of lives saved every year [p. 170]."

Labels: alcohol, Cook, taxes

 
New York Times on Vice Policy
- posted by Jim Leitzel @ 10:23 AM

A friend of Vice Squad brings our attention to yesterday's and today's business sections in the New York Times. Yesterday, Times economics writer David Leonhardt called for higher taxes on beer and wine. Today, we learn about the state of Texas's intention to introduce a $50 scratch-off lottery ticket, on the heels of other high-priced varieties that cost up to $30 each. The articles share a certain affinity for Vice Squad-style policy directions -- higher alcohol taxes and concerns about the under-regulation of gambling being venerable Vice Squad topics -- but more importantly, they share a reliance upon the ideas of friend of Vice Squad Phil Cook. Phil is both source and part-subject for the alcohol tax article, and his recent alcohol-policy tome, Paying the Tab, is described as "a wonderful little book". (Little? OK, the text per se is "only" about 200 pages, but I never viewed the book as little in terms of length or depth.) For the lottery article, Phil gets a reduced role of providing a short quote.

The lottery article notes that "traditional" lotto has been declining in popularity in Texas -- a "problem" that besets many state lotteries. Further, it provides some demographic statistics on lottery players, with yet more evidence that poorer people tend to spend more money, in absolute terms, on the lottery than do richer individuals:

In 2006, according to a University of North Texas survey commissioned by
state lottery officials, the typical black player spent $70 a month on the
lottery, compared with $47 for Hispanics and $20 for whites.

The demographic differences were especially sharp when it came to
scratch-offs. Players with a high school degree or less typically buy $20 a
month worth of scratch-off tickets, compared with $10 for college graduates. Similarly, players with an annual income of less than $12,000 spent 33 percent more a month than those with incomes above $100,000.

Labels: alcohol, Cook, lottery, taxes, Texas

 
Speeding Along the Demise of French Home Distilling
- posted by Jim Leitzel @ 6:29 PM

There is a rural tradition in France of orchard owners distilling high-alcohol fruit brandies, eaux de vie. But these home distillers are in serious decline, as the French government has been restricting the right to make tax-free distillations. Those whose production right -- it only amounts to 20 litres of 50 percent alcohol per rightholder -- was grandfathered in decades ago have not been allowed to bequeath that right, so many of the distillers are literal grandfathers. Nevertheless, French law is set to change on January 1, and the aged alcohol producers will either have to pay a 7.25 euro per bottle tax, or give up their traditional hobby. Seems a bit heavy-handed.

Here are some photos of the production technique for eau de vie, along with some commentary on the fear instilled by the French alcohol tax collection authorities.

Labels: alcohol, France, taxes

 
Checking in From Kyiv
- posted by Jim Leitzel @ 2:19 AM

The stop in London on the way to Kyiv afforded an opportunity to scour British papers for vice policy stories. The Guardian more than met its responsibility, in part through this offering concerning an alcohol harm reduction program in Kenya. The idea is to fight alcohol problems by ensuring a steady supply of, well, cheap beer. Yes, a major alcohol producing firm is a proponent of the idea, but it is far from crazy. The underlying notion is that many alcohol problems come from informally produced (hence untaxed) high-potency alcohol, which when consumed can both bring on drunkenness quickly and (through adulterants) wreak havoc upon drinkers. Kenya has engaged in what appears to have been a successful experiment of providing a cheap (untaxed but formally produced) beer, "Senator Keg". The beer is available only in kegs, so is sold by the glass, not in bottles or cans. And it has established itself in the Kenyan marketplace; whether this establishment has come at the cost (or benefit) of reduced hooch consumption is not really addressed in the article.

Some policy pundits, particularly those who (unlike Vice Squad) oppose higher alcohol taxes (in the US, that is), like to quote Thomas Jefferson: "No nation is drunken where wine is cheap." Adam Smith expressed similar sentiments.

Labels: alcohol, harm reduction, Smith, taxes

 
Redfining Success Downwards on British Childhood Obesity
- posted by Jim Leitzel @ 11:45 PM

"By 2020, we aim to reduce the proportion of overweight and obese children to 2000 levels." That's the British public health minister, as quoted in the Guardian. The earlier goal was to eliminate child obesity by 2010, so this is a rather severe adjustment. The issue is in the news because of the release of a report based on a two-year study. Among the policy proposals -- see the list on the sidebar of this Financial Times article -- is a tax calibrated to the fat content of food. I don't have a principled objection to such fat taxes, but I am pretty skeptical about their ability to function well in practice.

Labels: Britain, obesity, taxes

 
Hungary Formalizes Prostitution
- posted by Jim Leitzel @ 10:49 PM

Some elements of the sex trade (not including pimping or brothels) have been legal in Hungary since 1999, but eliminating the threat of arrest does not put prostitution on a par with other forms of self-employment. For instance, prostitutes could not take part in Hungary's social security system or provide documentation to potential lenders about their income source. This is changing, however, as Hungary has begun to issue entrepreneurial permits to prostitutes. "The permits allow prostitutes to give receipts to customers and become part of the legal economy by paying taxes and making social security contributions, said Agnes Foldi, head of the Hungarian Prostitutes' Interest Protection Association." Though the government is issuing the permits, it is not keeping a list of the names of permit holders; any central registry, of uncertain privacy, would dissuade many sex workers from applying for a permit.

Hungary's tax authorities also have been offering financial planning and accounting advice for sex workers -- counseling for financial matters and for drug and alcohol abuse should more generally be part of desirable prostitution regulations, in my opinion.

Labels: Europe, licensing, prostitution, taxes

 
Legalization and the Black Market
- posted by Jim Leitzel @ 8:32 PM

In some areas where prostitution is legal, illegal variants of prostitution still seem to flourish. (They might be illegal because the prostitutes are underage, undocumented, or ineligible or unwilling to work in the legal sector for some other reason, or just for tax evasion.) I have often compared this situation with alcohol in the US, where the legal sector, though taxed significantly, seems to outcompete the illegal sector, almost eliminating it. Phil Cook's Paying the Tab, however, indicates that the comparative success of the legal alcohol sector after Prohibition was far from automatic. "Initial liquor tax collections were disappointingly low, in part because the bootleggers continued to supply something like 45 million gallons per year (66 percent of the tax paid amount) [p. 30, reference omitted]." The Feds responded with a massive surge in enforcement and some new regulations that aided their efforts, resulting "in a considerable shrinking of the black market by 1937 [p. 31]."

Labels: alcohol, Cook, Prohibition, prostitution, taxes

 
Cook's "Paying the Tab"
- posted by Jim Leitzel @ 9:37 AM

Last month Vice Squad noted the release of Phil Cook's book on alcohol regulation, Paying the Tab. Last night a complimentary copy from the publisher, Princeton University Press, caught up with me; so far I have only read through the introductory Chapter 1. The book is elegantly written, almost a rebuke to the rest of the social science profession. (Disclosure -- Phil is a friend and former co-author, but I really don't recall the same level of grace in his earlier writings. Tom Schelling's blurb on the back refers to Paying the Tab as "beautifully written.")

Chapter 1 lays out the overall message, that alcohol control is too important to be confined to only a few dimensions, those of helping alcoholics and preventing drunk driving and underage consumption. Other measures that target the availability and price of alcohol can reduce the social costs of drinking while retaining most of the benefits. Cook compares the last couple of decades of alcohol control with tobacco control -- the latter has seen high (often too high, I -- and Phil, I think -- would argue) tax increases and a panoply of measures aimed at reducing the costs of smoking, while alcohol taxes generally have fallen (as inflation eats away their real value) and other control measures have languished.

I knew that about one-third of Americans do not drink in any given year, and that overall consumption is quite skewed towards the heavy drinkers, but Phil reinforces that message (page 8): "a majority of adults either don't drink at all or drink less than once per month, while the heavy drinkers at the top 10 percent of the distribution account for the bulk of sales and consumption." Wow.

I hope to have more on Paying the Tab as I make my way through it.

Labels: alcohol, Cook, taxes

 
Estonia to Raise Alcohol Taxes
- posted by Jim Leitzel @ 9:27 AM

OK, I recognize that if you haven't been following this issue for years, the title of this post does not promise much excitement to follow. And your suspicion, alas, would be correct. But for the interested Vice Squad reader, this BBC News article will prove informative.

The Estonian tax rise will hold repercussions for Finland, which felt compelled to decrease its high alcohol taxes prior to Estonian entry into the EU. The tax rise from Tallinn will probably engender an alcohol tax increase in Finland, too; Finland has seen a significant increase in alcohol-related problems since the tax cut, though perhaps the worst is behind them.

The linked BBC article contains a quote from someone at the Finnish health ministry that employs two frequent Vice Squad tropes, that of alcohol (and vice goods more generally) not being "ordinary" commodities and a comparison with one specific ordinary commodity, ketchup. Warms my heart:

At the Finnish health ministry Ismo Tuominen, in charge of devising new alcohol legislation, says the 2004 tax cut was a mistake - but that Finland is helpless to tackle its growing alcohol consumption.

"EU legislation is at the root of our problems," he says. "They treat alcohol like an ordinary product, like tomato ketchup or milk. They have to allow us to develop a health-based policy on alcohol - so we can limit the now limitless possibilities to bring alcohol in from other EU member states."

These comments are in league with the points recently raised by Dani Rodrik and Vice Squad.

The blog Finland for Thought currently sports a cornucopia of vice-policy-related posts. (First I wrote that the blog "currently hosts" those posts, but I found the rhyme to be troubling.)

Labels: alcohol, Estonia, EU, Finland, Rodrik, taxes

 
Discuss This Book
- posted by Jim Leitzel @ 10:23 AM

Tyler Cowen at Marginal Revolution posts about the new book by Vice Squad mentor Phil Cook on alcohol control. Phil's book is Paying the Tab: The Costs and Benefits of Alcohol Control, and the blurb from Thomas Schelling is a keeper. I haven't seen the book yet -- I am in Tbilisi, so it might take awhile -- but I did see Phil present a portion of the book last year. Phil is a supporter of raising taxes on alcohol, which also coincides with my view (hmmm, maybe I got it from Phil?). Tyler is unconvinced.

I hope to have more to say about Paying the Tab when I return to Chicago.

Tyler's post, incidentally, induced a comment from me, which I will reproduce below (not that it is the sort of thing that merits repetition)...

The alcohol excise tax falls in real terms every year, because it is not indexed to inflation. In real terms, the current federal excise tax is less than one-quarter of what it was in 1951. If we doubled the federal alcohol excise tax, it would be back at about the level it was at in 1973.

Incidentally, at least one scholar often thought to be a libertarian, John Stuart Mill, thought that it was perfectly appropriate for the government to impose higher tax rates on goods like alcohol.

Labels: alcohol, Cook, taxes

 
Bingeing on Beer
- posted by Jim Leitzel @ 11:09 AM

Adult drinkers in the US who binge -- that's 5 or more drinks at a sitting -- tend to binge on beer. That's not surprising, but it turns out that when teenagers binge, they binge on hard liquor. These results come from two just-published CDC-sponsored studies, as described here.

My previous understanding had been that beer was the alcohol of choice for the younger set. So this new study makes me wonder if efforts to police underage drinking -- the teens in the study were mainly high schoolers -- are actually having more of an effect. And as the country as a whole found out in the 1920s, a prohibition pushes consumers towards more potent forms of their substances. When the prohibition against teen drinking was lightly enforced, this line of thinking would go, teens preferred beer, and for the same reasons as adults: relatively cheap and relatively available. But make alcohol harder for kids to come by, and the couple of bottles of vodka -- more easily transported and hidden, and perhaps easier to consume more quickly -- begin to look better than a case of beer.

One of the policy issues this touches upon is the tax mix among different forms of alcohol. I have long believed that hard liquor is almost a different drug than beer or wine, and much more dangerous. Therefore, I think a policy that taxes hard liquor more heavily than wine and beer (and regulates it more strictly in other manners) is generally a good idea. And though I am against the current federally-imposed drinking age of 21, the fact that underage kids now prefer to drink heavily with hard liquor reinforces my view that the hard stuff should be differentially taxed.

Labels: alcohol, taxes, teens

 
Bingo's British Travails
- posted by Jim Leitzel @ 3:15 PM

Vice Squad noted some time ago that the smoking ban (already in place in Scotland, coming soon to the rest of Britain) was unwelcome from the point of view of bingo parlors. The Guardian's northern correspondent surveys the situation and finds that bingo halls might surprise you:

More than anything, bingo is good fun. My maternal grandmother used to be a regular player and would go to a bingo hall at least once a week. I never shared this passion, nor did my mother, as I wrongly assumed bingo halls would be full of pensioners. I was wrong, as it is one of those leisure pursuits that brings families together. When I went to a bingo hall recently, to write about the smoking ban, I was taken aback at how many young people were there. Young women with their friends, sisters, three generations of the same family; people who had become firm friends through their regular attendance at bingo. There were young men playing bingo with their girlfriends and they didn't look at all embarrassed.

Besides the smoking ban, bingo in Britain has to cope with the full implementation of the Gambling Act, which will increase license fees while also adding to competition from alternative forms of gambling, some of which are not taxed as heavily as bingo. A petition asking the government to protect bingo has attracted 230,000 signatures -- the Bingo Association, which was behind the petition drive, is spearheading an online campaign, too.

Labels: bingo, Britain, gambling, smoking ban, taxes

 
Swedish Alcohol Imports
- posted by Jim Leitzel @ 11:03 AM

Sweden's restrictive alcohol policies and the European Union's import policies repeatedly have come into conflict. One source of tension has been Sweden's state-owned retail alcohol monopolist, Systembolaget. If a Swedish resident travels to another EU country and brings back alcohol intended for personal use (which includes serving it to friends and family at a party, for instance), then EU law requires that such an import be legal. But Sweden does not allow individuals to have alcohol for personal use sent to their home from foreign suppliers (perhaps contacted via the internet); rather, any such acquisitions must come through Systembolaget. You can carry the alcohol yourself when returning from abroad, but you can't have it delivered.

Or at least that was the rule. A group of Swedish wine enthusiasts had been ordering wine from abroad over the internet. After having some of their wine confiscated, one of the group's members brought a court case. The Swedish Supreme Court put the case on hold until the EU's Court of Justice could rule on the legality of the import rules. (Somehow I find it hard to imagine the US Supreme Court doing this sort of thing, but maybe I am unimaginative.) In November, a preliminary recommendation sided with Systembolaget; last week, however, the EU court ruled against the import monopoly, according to this article:

...Tuesday's ruling said Sweden's prohibition of imports "is less a method of limiting alcohol consumption generally than a means of favoring Systembolaget as a channel for the distribution of alcoholic beverages."

It said such bans "cannot be justified on grounds of protection of the life and health of humans."

So it is likely that Sweden will soon make provision for individuals to import booze directly. Such a liberalization does not mean that the high Swedish alcohol taxes can be (legally) avoided: mail order personal alcohol imports will be subject to Swedish excises, though those imports that are carried personally are exempt. Whether the new provision will allow easy means of (illegal) evasion of Swedish alcohol taxes remains to be seen.

Labels: alcohol, EU, free trade, Sweden, taxes

 
Trading Vice and Income Taxes
- posted by Jim Leitzel @ 12:06 AM

Estonia has elected to increase its taxes on alcohol and tobacco (and fuel), while decreasing the income tax rate from 22 to 18 percent. Given the low levels of vice taxes that already exist in Estonia, and the high likelihood that the alcohol tax, in particular, does not fully account for external costs, this sounds like a good trade-off to me. Even if the externalities were accounted for, the "welfare costs" of taxing income (and thereby dissuading work in the official sector) might well be higher than the inefficiencies brought about by taxing alcohol, when it comes to raising a fixed amount of revenue.*

In any event, the tax hike comes as good news to Finland, which reluctantly felt compelled to lower its own alcohol tax upon the impending accession of Estonia to the European Union; since then, alcohol-related problems in Finland have increased. The prospect of higher alcohol prices in Estonia has the Finns thinking of re-raising domestic alcohol taxes.

*For an argument along these lines, see Larry G. Sgontz, “Optimal Taxation: The Mix of Alcohol and Other Taxes.” Public Finance Quarterly 21(3): 260-275, July 1993.

Labels: alcohol, Estonia, EU, Finland, free trade, taxes

 
Seconds on Secondary Effects
- posted by Jim Leitzel @ 10:55 PM

A couple days ago Vice Squad mentioned the "secondary effects" analysis that is the dominant strain in the body of US Constitutional law relevant for erotic dancing. The secondary effects are unhappy developments, including increased crime and lower property values, that might arise in the vicinity of an adult-oriented establishment. They serve as a basis for justifying, in a constitutional sense, some restrictions on the nature of adult-oriented activities that are permitted.

In California, purported secondary effects are being put to a new use, an attempt to justify a tax aimed specifically at the porn and adult entertainment industries. The proceeds of the proposed tax are earmarked for programs that combat crime.

The folks at Adult Video News are not impressed by the pending bill (as always with AVN, the link is not work-safe), calling it "a clearly unconstitutional attempt to selectively tax speech on the basis of its content." I agree with their characterization. The Supreme Court's secondary effects analysis is only applicable for controls upon speech that are deemed to be content-neutral, that would apply just as well to political speech as to commercial speech as to any other type of speech. It is a stretch to label a nude dancing ban (or, for instance, a G-string requirement) as content neutral, but that stretch is now established law. A tax on adult-themed enterprises is much broader than a nude dancing ban, and as it doesn't seem to apply to any other types of businesses that might spur crime or lower property values, seems on its face to be a content-based restriction on speech. And these sorts of restrictions must pass a higher bar to be consistent with the Constitution -- a bar placed so high that few restrictions can clear it.

There's a nice post from October 2006 concerning the jurisprudence around secondary effects on a blog entitled "talkbacknorthampton," which has many interesting posts defending free speech.

Labels: dancing, obscenity, pornography, Supreme Court, taxes