Taxing Smokestacks and Cigarettes?

February 22, 2011

The United States CapitolIn the ongoing backdrop of the Great Recession, and the immediate aftermath of a landmark 2010 U.S. national election which saw major gains by Republicans and Tea Partiers, U.S. Congress and state legislatures are focused on reducing public spending for social programs. It appears inevitable that some programs for people with disabilities (PwDs) will be sharply cut back. This has major implications for a growing PwD population which already represents 20% of the total population of the United States.

Because I work on accessible technology issues with businesses and nonprofits of all stripes, I do not always comment on the sensitive subject of taxes and government spending. However, what is generally agreed on is that public sector funding is helpful in giving PwDs the capability to live independently and achieve a quality of life equivalent to that of non-disabled people. When one in five Americans has a disability, there is great demand for products and services to mitigate or accommodate the disability, and improve quality of life. This in turn increases the spending power of PwDs.

Businesses will do their part by marketing and selling products specifically for PwDs, but they need a PwD market with spending power. This is a classic chicken-and-egg situation: which comes first, business or government? The solution is for government to get involved, too. When the public sector provides financing for programs that benefit PwDs, it is a win-win situation for everyone: businesses, consumers with disabilities and even governments themselves.

How are federal and state governments part of the win-win equation? If there are cutbacks in publicly funded programs which have helped some PwDs live better and more independent lives, there are higher future societal and medical costs which must be borne by someone. Who? Governments? Businesses? Banks? The American people? In today’s environment when the giant baby boom population is aging, becoming increasingly disabled, and requiring more social services, this is bound to get messy. Without an effective resolution today, the U.S. Government may need to find sources in the future to finance the required costs of supporting this population. Raising taxes, printing more money, or selling additional debt are hardly palatable options.

In a provocative op-ed in the New York Times last Friday, Robert Frank challenges the common notion of taxes as the great bogeyman. “A tax on any activity,” Frank writes, “not only generates revenue, but also discourages the activity.” There is logic in his statement. The higher my income tax bill is, the less purchasing power I have. So, higher taxes can result in limiting economic growth and capital investment, as consumers and businesses spend less. Because we don’t like this, we find ways to reduce our tax bill — legally and, for some of us, illegally.

Frank encourages the implementation and increase of taxes for activities that “cause harm to others.” Taxes on polluting emissions, alcohol, and cigarettes would have the effect of discouraging investment and spending on these harmful activities, thus reducing the future health and societal costs of excessive smoking, breathing polluted air, or alcohol abuse. These future costs include outlays to mitigate or accommodate a temporary or permanent disability resulting from exposure to harmful activities.

It seems counter-intuitive that, by discouraging cigarette smoking, there would be fewer future smokers, and consequently, a smaller source of revenue for the government. According to Frank, that is the whole point. The cost of health issues resulting from smoking, he says, outweigh the benefits of this behavior. By taxing harmful activities, future costs are reduced, lessening the burden on government to pay these costs. Conversely, taxing useful activities result in higher future costs which have to be paid, somehow.

The current debate has the U.S. Congress and state legislatures evaluating which programs for PwDs should remain fully funded, have their funds cut, or get eliminated altogether. No matter how much societal good these programs engender, legislators say that, along with cuts in education and other social programs, programs for PwDs are not immune from the budget ax. Unless the U.S. economy rebounds dramatically (an unlikely scenario, coming so soon after the great economic booms of the 1980s and 1990s and the housing boom of the 2000s), governments, businesses and non-profit organizations will take on the burden of servicing increasingly stressed elderly and PwD populations who have fewer lifelines to essential social and medical programs.

Today, a major source of government tax revenues comes from “taxes on useful activities,” in Frank’s words. If he can prove that taxes on harmful activities deliver much needed revenue and reduce the government’s future bills, they deserve a deep and hard look.

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