Tobacco, Smoking, Cigarettes, Sin Taxes, Obesity, Health Care Costs, Lost Tax Revenue, Abortion, Deficit and Debt

Posted by PITHOCRATES - June 5th, 2012

History 101

The Government saves Money in the Long Run when People Smoke because they Die Earlier than Nonsmokers 

A lot of people like to smoke.  Before we knew any of the adverse health effects of smoking it was as wholesome as apple pie in America.  American tobacco was one of the first cash crops of the United States.  Because it was in such high demand throughout the world.  During the American Civil War many officers chain-smoked cigars.  We put cigarettes in our soldiers’ C-rations in World War II.  Some of the most iconic photographs of battle-weary soldiers, seamen and airmen have a cigarette dangling from their mouths.  Our favorite parents from the Fifties’ sitcoms smoked cigarettes in their homes with their children playing on the floor at their feet.  If you watch AMC’s Mad Men everyone smoked cigarettes.  All of the time.  At work and at home.  In restaurants and in hospitals.  Even while pregnant.  Then the attacks against Big Tobacco began.

First they started with the sin taxes.  Greatly increasing the cost of cigarettes.  Which increased their opportunity costs.  People had to give up other things to continue to enjoy their cigarettes.  Especially the poor.  The rich still could enjoy their cigarettes without making sacrifices in their life.  And kept on smoking.  Movie stars and rock stars always have a cigarette hanging out of their mouths.  To look cool.  Which is why teenagers started to smoke.  Not because of Joe Camel.  But to look cool like their favorite movie stars and rock stars.  So people kept smoking their cigarettes.  While the government bureaucrats started tallying the health care cost of smokers.  To recover the health care cost of smoking government bureaucrats sued Big Tobacco.

According to ‘health care experts’ in the government smoking costs the health care industry some $100 billion annually.  Which is why they’re constantly raising taxes on cigarettes.  Why they sued Big Tobacco.  And why they’re ostracizing smokers everywhere by making almost every area a nonsmoking area.  But they still haven’t made smoking illegal.  Why?  High sin taxes and lawsuits.  Smoking is a cash cow for government.  And the dirty little secret about smoking is that the government saves money in the long run when people smoke.  Because of those sin taxes.  And because smokers die earlier than nonsmokers.  Up to a decade or more.  And it is in that last decade of life that seniors cost government the most.  Another decade of Social Security benefits.  And Medicare and Medicaid benefits.  Those benefits smokers paid into all of their lives.  Who forfeit them when they die early (and they don’t get passed on to their heirs).  Unlike the nonsmokers who don’t have the decency to die before collecting all of their Social Security and Medicare benefits.  Adding another decade or so for a whole sort of health ailments to inflict their fragile bodies.  Requiring more hospitalization.  Medication.  And nursing home care.  Expenses smokers help cut short by dying earlier.  Such as from an early heart attack before they even get a chance to have a lengthy and expensive hospital stay.

The Loss Tax Revenue from Abortions in the Eighties over Three Decades is Approximately $4.98 Trillion 

So government is increasing the opportunity costs of something people enjoy.  Smoking.  When in the long run smokers’ early deaths save the government money.   Not to mention those sin taxes fattening the tax pot when they’re alive.  So it’s a specious argument that the government is spending more on them in health care costs than nonsmokers who live another 10-20 years.  So why do they do it?  To boost tax revenues.  And smokers are just a convenient scapegoat.  Like the obese.  Where those on the Left make the same arguments.  Where according to ‘health care experts’ in the government obesity costs the health care industry some $150 billion annually.  Even though these people like smokers live shorter lives.  So while they’re consuming that $150 million the government is keeping about 10-20 years of their contributions to Social Security and Medicare.  So it is again a specious argument that the government is spending more on obese people than thinner, healthier people who live 10-20 years longer.  Who could, say, fall and break their pelvis requiring an extensive and expensive hospital stay.  As well as rehabilitation and possibly nursing home care.  And yet those on the left have campaigned to remove toys from Happy Meals.  And made it illegal in New York to buy a big cup of soda pop.  Why?  Again, to boost tax revenue.

All right, let’s go to the source of that tax revenue problem.  Let’s look at a decade of lost tax revenue.  From 1980 to 1983 there were about 1,300,000 abortions each year.  In 1984 there were 1,333,521 abortions.  In 1985 there were 1,328,570 abortions.  In 1986 there were 1,328,112 abortions.  In 1987 there were 1,353,671 abortions.  In 1988 there were 1,371,285 abortions.  In 1989 there were 1,396,658 abortions.  In 1990 there were 1,429,577 abortions. 

Had these abortions not happen in 2006 there would have been an additional 1,300,000 taxpayers aged 26.  In 2007 there would have been an additional 1,300,000 taxpayers aged 27 and an additional 1,300,000 taxpayers aged 26.  And so on.  If you crunch the numbers over a 30-year period by decades you get an additional 72,006,665 people paying taxes at all levels of government in the first decade (2006-2015).  An additional 146,913, 940 tax-paying people in the second decade (2016-2025).  And an additional 88,169,092 tax-paying people in the third decade (2026-2035).  The average age in the first decade is 29.  It’s 32 in the second decade.  And 42 in the third decade.  Assuming those age 29 earn on average $30,000 annually, those age 32 earn on average $40,000 annually and those age 42 earn on average $50,000 we get the following incomes per decade: $2.16 trillion, $5.88 trillion and $4.41 trillion, respectively.  Assuming that we pay approximately 40% of all our earnings in taxes at the city, state and federal level the lost tax revenue (at all levels of government) for those same decades equals $864.1 billion, $2.35 trillion and $1.76 trillion, respectively.  For a grand total of loss tax revenue for those three decades of approximately $4.98 trillion.  Or on average $165.9 billion per year.  These numbers are conservative.  Yes, some of these people may not survive to become taxpayers.  But some of these could become millionaires and billionaires, paying more in taxes.  There could have been another Lady Gaga, Madonna, Oprah Winfrey, Warren Buffet, Bill Gates, Barbara Streisand, George Clooney, Steve Jobs, etc.  A few of these added to the calculations would make the lost tax revenue numbers larger.

From the Government’s Perspective Abortion has a Far Greater Opportunity Cost than Smoking and Obesity 

This is the opportunity cost of the abortions in the Eighties.  So much loss tax revenue that the government has attacked smokers and the obese.  Whose health care costs are not adding much if anything to the federal budget.  Thanks to their early deaths compared to nonsmokers and thin people.  (If the government starts refunding remaining Social Security and Medicare benefits to the surviving family that may change.)  Yes they are costing the health care system.  But their costs are just brought up earlier in their lives as opposed to someone living 10-20 years longer making the nursing home to hospital to nursing home roundtrip a few times in the last 10 years or so of their life.  Because they have lived so long.  And had a chance to suffer every disease and trauma those smokers and obese can’t due to their early deaths.

It is interesting to note that the federal deficit in 2006 was $282.14 billion.  The lost tax revenue from the Eighties’ abortions was on average $165.9 billion per year in those three decades.  Granted not all of that money would have been federal taxes.  But with the conservative estimate of that loss tax revenue it is safe to say it would have come close to balancing the federal budget.  And if you factor in the abortions of the Seventies (there were fewer than in the Eighties but they would have been higher earners in the 2000s) the federal deficit may have become a surplus.  At least holding the federal debt to the $9.34 trillion it was in 2006.  Perhaps even reducing it.

Smoking and eating an unhealthy diet may be bad for you.  But it probably doesn’t cost the government anymore in tax dollars.  But they increase the opportunity costs of these things we enjoy to dissuade us from enjoying them.  So those who enjoy smoking and eating and drinking ‘bad’ things enjoy life less.  By not choosing what they want to choose.  Why? To pay for the lost revenue from another choice that government doesn’t try to dissuade people from.  Abortion.  Which from the government’s perspective has a far greater opportunity cost than smoking and obesity.  And yet government paints a bulls-eye on the back of smokers and the obese.  Why?  Because they’ve so demonized and oppressed them they can.  While the abortion issue too much of a sacred cow to those on the Left.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , ,

Time Value of Money, Interest, Risk, Opportunity Costs and Banking

Posted by PITHOCRATES - January 2nd, 2012

Economics 101

Entrepreneurs have to Borrow Money because their Income comes AFTER they Build Things

A lot of things came together to give us a modern civilization.  Food surpluses, division of labor, money, religion, rule of law, free trade, free labor, prices, incentive and competition.  As well as other important developments.  Such as banking.  That addressed the time value of money.  And the risk of lending.

Before farmers can sell their harvests they have to plant them first.  This takes money.  Which raises an obvious question.  How do farmers get money to plant a crop?  When their income comes AFTER the planting of that crop?  Entrepreneurs have the same problem.  They can build things to sell.  But like the farmer they have to buy materials first.  Which takes money.  So how do entrepreneurs get money to build the things they build?  When their income comes AFTER the building of these things?

Of course farmers and entrepreneurs have to borrow money.  Say from a parent.  Who has been saving up for a really nice vacation.  A parent can loan the farmer or the entrepreneur money.  But that means that they may have to postpone their plans.  Or change their plans. For the same vacation may cost more next year than it does this year.  If they loan their money and get the same amount back they won’t be able to afford that same vacation.  Unless they charge interest.  So that when they get their money back AND the interest they can then afford that same but now more expensive vacation.

A Bank collects Deposits from Numerous Depositors so they can lend it to the People who Need Capital

This is the time value of money.  Over time money buys less.  Because it’s worth less.  The same amount of money will buy more today than it will 10 years from now.  This lost value is the cost of borrowed money.  And why borrowing money typically incurs interest.  Money a borrower owes in addition to the amount borrowed.  The interest compensates the lender for the lost value of their money.  So when you repay it they don’t lose any purchasing power.  And the lender can buy the same things that they could have when they loaned you the money.  Like a postponed vacation that became more expensive over time.

As the economy became more complex it required more borrowed money to pay for the production of other things.  Things that we sell much later than when we purchased the material to make these things.  Expensive things.  Tools.  Equipment.  Factories.  Trucks.  Costs so great that a person’s parents may not have enough savings to finance these things.  But they could if we combine their savings with other people’s savings.

Alexander Hamilton said a person’s savings was just money.  But when added to the savings of other people that money became capital.  Large pools of money available to loan.  So entrepreneurs could borrow money to buy tools, equipment, factories and trucks.  This important part of business became a business in itself.  The banking business.  A bank collects deposits from numerous depositors.  So they can lend it to the people who need capital.  They pay interest to depositors to encourage them to deposit their money.  And charge interest to borrowers to pay the depositors’ interest and other costs of running the bank.

Charging Interest Compensated the Lender for the Risk they were Taking and is a Necessary Part of Capitalism

Banks get a lot of bad press these days.  Since the dawn of banking, really.  People say bankers get rich for doing nothing.  Using other people’s money to boot.  Some call it a sin.  Usury.  Making money simply by lending money.  The ancient Jews forbade it.  So did the Christians.  Even the Muslims.  (And still do.)  But without banks we wouldn’t have a modern civilization.  In fact, if we had no banks you would not recognize the world you’d be living in.  There would be no middle class.  And our economic system would probably still be based on Manorialism.  Where most of us would still be serfs.  Working the land for the Lord of the Manor like our distant ancestors did in the Middle Ages.

There would have been no Industrial Revolution.  No cell phones.  No Internet.  Because all of these things required capital.  The pooling of people’s savings.  To provide the investment capital it takes to finance these things we take for granted in our lives today.

But things changed.  First the Jews started lending money for interest.  Then the Christians followed.  Seeing that business and commerce needed to borrow money.  And that lending money incurred risk.  (Some people might not repay their loans.)  And there were opportunity costs.  (The other things they could do with that money.)  Charging interest compensated the lender for the risk they were taking.  It wasn’t usury.  It was a necessary part of capitalism.  And the modern world we take for granted today.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , ,