Economics Made Economical

The Sin Tax: Why It’s Pro-Liberty and Pro-Capitalist

One of our nation’s biggest gripes in recent history has been about the government’s use of taxes to do what, on the surface, appears by many freedom-loving Americans to be a major curtailing of our liberties. In many cases, they’d be right. The so-called Sin Taxes, however, do not fall into this category. Here’s why:

Healthcare, medical treatment, human suffering, and similar abstract concepts can never truly be anything remotely close to perfectly competitive economic industries because it would requiring “monetizing” the worth of a human life. Creepy as it may sound, there are times when economists and actuaries do have to assign a monetary value to a human life. But this is performed in general terms for the purpose of life insurance, accidental deaths, end-of-life care, and calculating any associated costs relevant to those areas. In terms of the worth of a individual human being and his or her particular situation, it is unethical for a business, a government, or anyone to reduce a person to a monetary value. For this reason, the government has often tried to more stringently regulate the medical industries. However it has often ended up having little success.

One of the tools available for the government to level the playing field with respect to you valuing your own life much higher than a doctor or a hospital might is to offer comprehensive mandatory health coverage for all citizens, as President Obama’s Obamacare attempts. In reality, this is easier said than done because a government-mandated monopoly over an industry is just as bad for economic efficiency as a private monopoly.

Because resources are scarce and expensive, because medical treatment is an extremely inelastic market, and because skilled professionals are relatively rare, the medical and pharmaceutical industries are notorious price gougers. Limiting the length of time patents can be held on brand-name drugs is one tool the government uses to help reduce the impact of price gouging in the pharmaceutical industry. Health insurance plans, which pump as much competition into the medical industry as is possible, by giving consumers as much information as can be found and enabling them to use that information to make their own choices as to which doctor or hospital to go to for treatment.

How Is The Sin Tax Related?

The Sin Tax is, at its most basic, another government tool to attempt to bring fairness and competition into a grossly unfair industry. We’re all required to pay into the Medicare/Medicaid system if we’re working in the United States. However, hospitals, doctors, and even the insurance companies don’t do what they do to not make a profit. Part of an insurance company’s basic principle of ensuring it profits is to charge its customers a higher amount than the average customer uses. Simple and sensible, right?

Well the problem that comes into play is that smokers, heavy drinkers, drug abusers, and people who choose not to make healthy food choices cost the medical companies, and therefore cost the Medicare/Medicaid system, much more money on average than those with healthier lifestyles do. The government cannot withhold different percentages of Medicare payments from different people’s paychecks based on individual health habits. Likewise hospitals and doctors cannot charge different Medicare recipients differing amounts of money for the same procedures.

The easiest and most efficient way to level this playing field is to pad the “unhealthy” goods’ costs with a tax equivalent to the extra financial burden those who engage in the unhealthy activity are placing on the Medicare system. This “sin tax” is therefore equivalent to the economic theory behind the Fair Tax by taxing people at the cash register according to how much they buy and what they buy. Just as the Fair Tax leaves essential clothing and food items untaxed, the Sin Tax ensures that detrimental products are taxed at a rate relevant to the strain they place on our nation’s medical system and our healthcare costs.



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