The Marginalist:

Bill Killer

APPARENTLY I’ve earned a new name for myself in my high school government class: “Bill Killer.” We were debating bills in a Legislative Simulation (LegSim), and the first bill to come up was a bill to expand SCHIP, the government program providing health insurance to children.

The bill proposed:

-Expanding health insurance to all children living in families below twice the poverty level.

-Funding for the bill would come from increasing the cigarette tax to $1.00 per pack (the bill was written before the real SCHIP bill was passed).

And I’m going to address these two key proposals today, as well as the moral issue.

#1. Expanding health insurance to below twice the national poverty level.

Eligibility for SCHIP will be kept uniform among states and will be frozen at 200% or below the federal poverty level. If states are to exceed the maximum eligibility requirement of 200%, they will risk losing significant portions of their SCHIP funds determined at the discretion of the CMS.

WHILE using the national poverty level sounds like a good idea, we have to realize that income levels and price levels differ greatly across the country. A $50,000 income goes a lot further in Mississippi than it does in New York (I had a campaign manager from Mississippi who once said that living in Mississippi with a Washington, D.C. income was the best deal in life). This also means that poverty levels are extremely different in different areas.

Let’s say, for example, that a person making $30,000 in Mississippi is as rich (or poor) as a person making $50,000 in New York. (Why the disparity? Because in Mississippi, everything is cheap; in New York, everything is expensive). Let’s also say the national poverty level is set at the income of $20,000 a year.

Under the bill, children in families with an income of $40,000 would be eligible for health care. But that would include children from overqualified families. The families making between $30,000 to $40,000 in Mississippi would be getting health care, but the families making between $40,000 and $50,000 in New York would be excluded from SCHIP. But, when you adjust for price levels, the Mississippians getting health care are actually richer than those in New York. So poor people in New York get shafted because they don’t appear to be rich. Meanwhile, families in low price-level states such as Mississippi will benefit at the expense of New Yorkers.

The point here is that any governmental form of welfare should be as local as possible. Local and state governments know their areas better than bureaucrats in Washington, D.C. They know what levels of welfare are appropriate and they know better how to do it.

EDIT 6/4/09: Apparently, in New Jersey, SCHIP is currently extended to families that are at 3.5 times the poverty level. The bill would essentially prevent New Jersey from funding  many of the families who are using SCHIP right now… so this “expansion” of children’s health care will actually cause some children to lose it!

#2. The cigarette tax

EXCISE taxes are dangerous for a few reasons.

One is the arbitrary nature of a specific tax on a specific product. Why cigarettes, and why so much? Why not alcohol or puppies or sports drinks? to be sure, there is second-hand smoke. Like other pollutants, it makes sense to tax cigarettes for second-hand smoke because of externalities.

But, if anything, this should be done locally. After all, second-hand smoke generally doesn’t cross state (or even city) lines. Again, policy is better when it is localized. Why should the national government do it when the state and city governments can do so much better?

The second reason is that excise taxes have vastly different impacts on different areas of the country. Different states have different rates of smoking. For example, according to Indiana Tobacco Prevention and Cessation (pdf), the rate of smoking in Utah is just below 10%; in Kentucky, it is nearly 30%. Increasing a tax on cigarettes would make Kentucky pay disproportionally more for the health care program than Utah.

The third reason is simply supply and demand. If you arbitrarily increase the cost of cigarettes, people will buy less of them. The amount of tax dollars you get from a cigarette tax is (quantity sold) x (tax). But increasing the tax decreases the quantity sold, so you get less tax revenue than you were hoping for. But I won’t dwell on this, because it’s not a major issue (demand for cigarettes is inelastic — comment if you want me to go into that).

The fourth reason is that some taxes are regressive; they hit poor people hardest. Cigarettes and alcohol are examples of these, because a greater percentage of a poor person’s income is spent on cigarette taxes than a rich person’s. Basically, the tax unfairly targets poor people.

EDIT 6/4/09: It’s also harder for poor people to quit cigarettes — the poor have less access to programs and technologies that help them quit smoking.

#3 The moral issue

I think it’s pretty apparent that my first career choice is going to be an economist. My second career choice is actually to one day run a hospital or a school for poor kids — I believe very strongly that every kid should get a fair shot at life, regardless of their family backgrounds.

What I don’t believe, however, is forcing this moral onto other people. I’m not saying that there are many people out there who don’t believe that kids should have access to health care, but maybe they have other charitable priorities. Perhaps they care more about the environment, or helping refugees, or providing education to poor kids.

The wonderful thing about a free society is that you, as an individual, will have the ability to choose how to use your money, whether it be on yourself or any one of a large number of charitable causes — and no one can force you to choose one charitable cause over the other. You have that choice.

Many political liberals believe strongly in taxing the people to spend on government charity — basically forced charity. Force charity is forced morality. But for some reason, many liberals also oppose the use of government to tell people how to behave in regards to religion and sex, but those are also forms of forced morality.

The fact that the bill proposed in our mock government class involves an excise tax makes it even less moral. I think a lot of people supporting this bill would never, ever smoke — this bill would be forcing someone else to pay for their own personal motivations.

Charity involves self-sacrifice for the benefit of someone else. Forcing someone else to pay for your charity isn’t moral, it’s selfish. It’s saying that yes, I’d like this to happen, but I don’t actually want to have to sacrifice for it myself. That’s someone else’s job.

When government gets involved in welfare, it takes the moral burden off of the individual. But morals are and should be an individual thing. Before the government got involved in health care, doctors often offered cut-rate services or free services to those living in poverty.

But now that government has stuck its nose in, we’re starting to accept that someone else will take care of it, that we can always force someone else to be charitable in our place, that government will take care of us from cradle to grave — and then we become dependent on government. We begin to draw our power from government, not the other way around… and then we really have lost what was great in America.

A government that is big enough to give you all you want is big enough to take it all away. — Barry Goldwater

– Bill Killer