Addicted to Sin (Taxes).
In cleaning up my web server, I found a number of essays that pre-date this blog. Call it proto-blogging. Here's one from June, 2002.

People have often observed that government programs sometimes work at cross-purposes. The military guts and completely renovates a building at a base—just before the entire base is closed. The Small Business Administration promotes small business development through helping provide loan packages—while OSHA, EPA, and an alphabet soup of agencies make sure that businesses don’t get too successful, at least without proper government permission.

The Department of Agriculture conducts research into how to raise hogs with less fat, but it also pays farmers to not raise hogs at all. And of course, tobacco farmers get subsidies for growing demon weed, while the Surgeon General oversees an office that tries to discourage smoking.

Meanwhile, the agreement between most of the states and the major tobacco companies is absurd on many accounts. Start with the requirement that the tobacco companies donate buckets of money to anti-smoking groups who then produce TV commercials blasting the same tobacco companies.

Another absurdity is the fact that politicians tell us with a straight face that smoking is bad and costly to society—-even as they become increasingly addicted to cigarette taxes.

You thought nicotine was addictive? What’s even more addictive than nicotine, it turns out, are taxes on nicotine. Numerous states levy hefty per-pack cigarette taxes, and tax rates are increasing every year. In Kansas, for example, Governor Bill Graves suggests hiking that state’s 24 cents-per-pack tax by 65 cents—making the tax nearly four times as high was it was in May 2002. In Ohio, state senators called for tripling the state’s cigarette tax, to 74 cents. So, governments, which allegedly want to discourage smoking and recover “social costs” of smoking, will need people to continue smoking.

It’s no surprise, then, that a report by the General Accounting Office, published in June of 2001, found that states are soft-peddling their efforts to stop smoking. Only 7 percent of the money given to them under the Master Settlement Agreement has been spent on anti-smoking activities. Politicians may not want people to continue smoking . . . but they certainly benefit from the tobacco money to feed ever-larger budgets.

But why should anyone complain about these taxes? Aren’t they voluntary, anyway, and more like user fees? Well, I’m all for user fees, under which people who benefit from a government service pay for it. Roadway tolls that are used to pay for the building and maintenance of expressways are one good example. So are hunting and fishing license fees, which help fund game conservation efforts.

But smokers already pay a user fee—the money they pay to the tobacco companies and their distributors. A user fee pays the entity that produces the good or service. Governments do not produce tobacco products, cigarette companies. Of course, governments have long claimed a take on cigarettes (and liquor), under the label of "sin" taxes, levied, allegedly, to persuade people to refrain from engaging in sinful activities.

But now, government budgets, bloated by a spending spree of the 1990s, are increasingly going with the expectation that people will continue to sin. So, while anti-smoking campaigns continue to roll along, the smoking dough continues to roll in.

Labels: Taxes

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Is illegal immigration good or bad?
If you're involved in the debate on immigration--and I must admit that it's got some important issues in play, but I'm far too busy with other concerns--check out the bloggers at Cafe Hayek.

I'm going through my drafts file, one at a time. Often, the entries have been overtaken by events. Obviously, not this one. (permalink)

If Your City Cries Poverty, Examine the Books.
Here's something from the draft archives that's finally seeing the light of day. How appropriate to discuss snow just as we're entering the first several heat waves that will be hitting us this summer.

This blog entry was started nearly two years ago. Talk about procrastination!

Here we go with the beginning of the draft:

In the last few years, many state and local governments have blamed budgetary shortfalls on a weak economy, the growing use of internet-based sales, and policy decisions at other levels of government.

But a more fruitful place to begin is unnecessary spending.

The government of Traverse City, Michigan, is dealing with a $994,700 shortfall.

Nearly 9 percent of that money, or $84,594, can be found on the slopes of the Hickory Hills ski area.

Last season on the hill's operation--or 9 percent of the city's budgetary shortfall.

One resident's comments illustrated the folly of taking the "cool cities" fad too seriously. "We talk about wanting to be a cool city, and I just don't know what could be cooler than to have your own city ski hill." (The Traverse City Eagle-Record has details.

And that's it. I ended up turning this post into a commentary for the Mackinac Center for Public Policy.

Here's the commentary as it was published in 2004. (I'm not going to bother to re-create the links.)

Cities that Cry Poverty Should Sell Their Money-Losing Ski Areas

In the last few years, the state government, as well as local governments across Michigan, have blamed budgetary shortfalls on a weak economy, loss of sales-tax revenue to the Internet, and policy decisions at other levels of government.

Rather than point the finger elsewhere, however, government officials ought to look first at some of their own unnecessary spending.

A bad example of public priorities – and a good example of the need to reorder them – comes from the northwestern town of Traverse City. It is currently dealing with a $994,700 budget shortfall.

Nearly 9 percent of that deficit, or $84,594, can be found on the slopes of the Hickory Hills ski area, a city-owned facility. The ski area’s loss has come even with the financial help of the Grand Traverse Ski Club, a private group that has provided funds towards snowmaking and lighting equipment.

In the last few years, the state government, as well as local governments across Michigan, have blamed budgetary shortfalls on a weak economy, loss of sales-tax revenue to the Internet, and policy decisions at other levels of government.

Rather than point the finger elsewhere, however, government officials ought to look first at some of their own unnecessary spending.

A bad example of public priorities – and a good example of the need to reorder them – comes from the northwestern town of Traverse City. It is currently dealing with a $994,700 budget shortfall.

Nearly 9 percent of that deficit, or $84,594, can be found on the slopes of the Hickory Hills ski area, a city-owned facility. The ski area’s loss has come even with the financial help of the Grand Traverse Ski Club, a private group that has provided funds towards snowmaking and lighting equipment.

The city’s parks and recreation commission has explored various ways of closing the budget gap, including raising prices or cutting services, to save $20,000 a year. Even so, local officials hope to spend $3 million to purchase a 117-acre parcel next to the ski area, which might give the money-losing operation a chance to expand. Or it might be an investment in another money-losing city operation.

BELOW-MARKET RATES
One reason for the red ink is the below-market rates charged for this non-essential government service. During the 2003-2004 season, an adult season pass cost $90; city residents paid $85. The maximum daily rate was $12.

By contrast, adult daily passes at nearby private slopes bring in more money. An adult daily pass at Boyne Mountain cost $37 in the late season, when prices are already discounted. At Caberfae, the maximum daily rate for the 2003-2004 season was $38. A similar difference can be found by comparing Hickory Hills to other, privately-owned ski areas throughout northern Michigan.

Even non-profit Mt. Holiday Inc., which also operates a ski area in the Grand Traverse area, charges more than Hickory Hills. But it does not enjoy the luxury of passing along its debts to taxpayers. During the last season, a daily lift ticket for adults cost $30 at peak times. Adult season passes cost $261 to $290, depending on the date of purchase.

One reason often given by proponents of government ownership of recreational facilities is that it is needed to bring sporting opportunities to youth and as low-income people. But profit-seeking companies already have incentives to attract new customers, and non-profit Mt. Holiday offers scholarships to the financially needy. According to federal reports available through Guidestar, Mt. Holiday Inc., does this without accepting government money.

DIVEST UNNECESSARY BUSINESSES
Owning and operating recreational facilities is at best a low priority of government. This is doubly so in a region, such as northern Michigan, with a wealth of facilities already offered by private sector businesses and the civil society.

A partial but long-lasting solution to Traverse City’s budget woes – and indeed, of any government – is cease money-losing, unnecessary, and inappropriate functions. The state Department of Natural Resources last year contracted out management of a state-owned ski resort, The Porkies, to save taxpayers an estimated $200,000 this year.

The sale or privatization of the city’s Hickory Hills ski area provides a sterling opportunity for the city to begin to get its financial house back in order.

[In the time since this commentary was published, I visited Boyne Mountain. According to the staff members I talked with, people visit from Traverse City all the time.)

Labels: Cool cities fad, privatization

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The Large Cost of Marginal Increases in the Home Ownership Rate.
A key insight of economics is to focus on the marginal (or "next step") costs and benefits of a given action. Say that you're going to buy a new car. You may be willing to pay another $5,000 for a better vehicle, but at another $5,001--that extra dollar--you start to reconsider.

The same logic works in public policy and in the economy generally. We stop and say "Is this increase in benefit really worth the cost?"

In the last few years we've seen record levels of home ownership. Oh yes, the American dream, spread wider (a greater percentage of the population and deeper (with second homes) across the country than ever before.

"Subprime Aftermath: Losing the Family Home," A recent article in the Wall Street Journal (temporary link), provides a look at the marginal costs of expanding the ownership base.

"In 2006 alone, subprime investors from all over the world injected more than a billion dollars into 22 ZIP Codes in Detroit, where home values were falling, unemployment was rising and the foreclosure rate was already the nation's highest, according to an analysis of data from First American LoanPerformance. Fourteen ZIP Codes in Memphis, Tenn., attracted an estimated $460 million. Seventeen ZIP Codes in Newark, N.J., pulled in about $1.5 billion. In all of those ZIP Codes, subprime mortgages comprised more than half of all home loans made.

The figures show the extent to which the new world of mortgage finance has made the American dream of homeownership accessible to folks in previously underserved communities. By some estimates, subprime lending has accounted for as much as half of the past decade's rise in the U.S. homeownership rate to 69% from 65%. But as the experience of West Outer Drive illustrates, the flood of cash has also encouraged people to get into financially precarious positions, often precisely at the time when they were least able to afford it. In doing so, it may have temporarily alleviated -- but ultimately worsened -- some of the nation's most acute economic problems."

By definition subprime lending means loans that are, on an economic analysis, the least justified. They're to people who are stretching themselves to the limits of their abilities to repay--and as it turns out, sometimes beyond that. The article emphasizes the stories of a neighborhood in Detroit which is experiencing a rush of foreclosures now that adjustable rate mortgages are adjusting ... up. Unfortunately, there are (literally) neighborhood effects at play:

"Kevin Lightsey, a local agent at Keller Williams Realty, says he doubts such foreclosed homes are likely to find new owners willing to live there. 'Nobody's going to want to buy into a neighborhood with 20% foreclosures,' he says. 'You end up with no neighborhood.'"

Labels: Economics

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