In the second of three Washington Post editorials today with which I agree, the Post calls on Maryland legislators and the Governor to support an increase in the state tobacco tax. Now, this is something I can get behind. No, not because I'm a non-smoker (though I am), but because it's good public policy.
First, the tax is a participatory tax, it effects only those who engage in a certain behavior and with proportion to the amount they participate in it. Now, perhaps some will argue it's a regressive tax, as I think the poor and uneducated are somewhat more likely to smoke. Well, yes, maybe it is, but if it encourages them to put their money toward something else more worthwhile (an IRA maybe? savings?), then that's a good thing.
Tobacco taxes are largely Pigouvian taxes. Such taxes are designed to cause firms (or in this case, individuals) to modify their behavior. However, the modification that is desired is not random. They are desired because the behavior that the firm or individual engages in places costs on society that are larger than the cost borne by the firm or individual alone. In other words, when you smoke it costs society more than the money you pay for increased medical bills, cigarettes, etc. Other costs, such as higher overall medical costs and increased incidents of asthma and other respiratory ailments among non-smokers, are not internalized (paid for or considered by smokers). To make smokers take those costs into account when determining how much they are going to smoke, society imposes a tax. The tax on cigarettes is far below the level required to achieve the optimum amount of smoking. Now, contrary to what some might thing, from an economic perspective that isn't zero. Regardless, the tax increase is a good thing.
That the state has the ability to spend the money on issues related to health care and to combat the societal costs of smoking just doubles the benefit of the Pigouvian tax.
First editorial (on the ports deal) analysis is here. I apologize for the heavy load of serious posts today.