Page 656 – Show-Me Institute

Smoke Screen Arguments

Posted on June 15, 2010May 5, 2026 by Caitlin Hartsell

Yesterday, Martha King made a liberty-oriented argument against cigarette taxation, noting that cigarette taxes are imposed by a majority (nonsmokers) on a minority (smokers). A study in The Public Opinion Quarterly supports her conclusion; it found that where cigarette taxation is involved, individuals are self-interested. Nonsmokers favored cigarette taxes far more than smokers did. The majority choose to impose a tax on the minority, in many cases using moral or economic arguments that the use of cigarettes leads to poor outcomes.

The Daily RFT blog picked up on her post, but didn’t seemed particularly swayed by an argument for liberty. I had a conversation yesterday morning with my coworker Abhi Sivasailam, who suggested an efficiency argument against taxation, and pointed me to a National Bureau of Economic Research working paper titled “Cigarette Taxation and the Social Consequences of Smoking.” An argument that many people make in their attempts to justify cigarette taxes is that such a tax helps to internalize the additional costs of smokers — but this study concludes that the societal cost is already internalized.

From the study’s abstract:

Detailed calculations of the financial externalities of smoking indicate that the financial savings from premature mortality in terms of lower nursing home costs and retirement pensions exceed the higher medical care and life insurance costs generated. The costs of environmental tobacco smoke are highly uncertain, but of potentially substantial magnitude. Even with recognition of these costs, current cigarette taxes exceed the magnitude of the estimated net externalities.

So, if the costs of smoking are already largely internalized, imposing additional taxes on cigarettes is inefficient. It’s also worth pointing out that cigarette taxes are regressive, and any argument that holds the state should appropriate money from smokers to pay for other programs places an undue burden on a vulnerable group.

Is it horrible that people die from smoking cigarettes? Yes. Is it horrible that people die in automobile accidents? Yes, but that doesn’t constitute a rationale for taxing cars out of existence, or cupcakes, or the many other things that people use and enjoy that can also contribute to future poor health. If free, consenting adults choose to smoke, despite the known risks, it is their prerogative.

Ramble & Rumble!

Posted on June 15, 2010May 5, 2026 by Christine Harbin

I’m looking forward to speaking with Rabbi Eukel, the radio rabbi, on Ramble & Rumble with Rabbi, Venue For Vision & Values in Our Communities tomorrow at 7:10 a.m. CST. I will talk about IDEAS, the Show-Me Institute’s newest web tool. You can listen online here. I encourage our blog readers to tune in!

Missouri’s Many Health Insurance Mandates

Posted on June 15, 2010May 5, 2026 by Caitlin Hartsell

In the recent public discussion of the autism bill and health insurance mandates, a recurring question has emerged: can a particular mandate be worth the costs — or, at least, be more worthy than most? If we follow that logic, though, where do we draw the line?

As of 2009, Missouri had 41 mandates for health insurance. Considered singly, no individual mandate had a large impact on premium costs, but they each had a marginal impact. Every incremental increase in the cost of health insurance premiums leads to the possibility that some unknown number of individuals and businesses are no longer able to afford their previous coverage.

Here is a look at mandates in Missouri (data compiled from the Council for Affordable Health Insurance):

Mandated benefits:	States with mandate	Influence on premium
Alcoholism/Substance Abuse	45	1% to 3%
Ambulatory Surgery	11	1% to 3%
Blood Lead Poisoning Screening	9	<1%
Bone Marrow Transplant	11	<1%
Bone Mass Measurement	16	<1%
Breast Reconstruction	50	<1%
Cervical Cancer/HPV Screening	31	<1%
Clinical Trial	23	<1%
Colorectal Cancer Screening	33	<1%
Contraceptive	29	1% to 3%
Dental Anesthesia	30	<1%
Diabetic Supplies	47	<1%
Drug Abuse Treatment	35	<1%
Emergency Service	47	<1%
Hair Prothesis	11	<1%
Mammography	50	<1%
Mastectomy	23	<1%
Mastectomy Minimum Stay	25	<1%
Maternity	23	1% to 3%
Maternity Minimum Stay	50	<1%
Mental Health General	39	1% to 3%
Mental Health Parity	47	5% to 10%
Newborn Hearing Screening	18	<1%
Off Label Drug Use	36	<1%
PKU/Metabolic Disorders	34	<1%
Port Wine Stain Elimination	2	<1%
Prostate Cancer Screening	36	<1%
Second Surgical Opinion	11	<1%
Well Child Care	34	1% to 3%
Mandated providers:	States with mandate	Influence on premium
Chiropractor	46	1% to 3%
Dentist	34	3% to 5%
Nurse Practitioner	31	<1%
Optometrist	44	<1%
Podiatrist	33	<1%
Psychologist	44	1% to 3%
Speech/Hearing Therapist	21	<1%
Mandated coverage:	States with mandate	Influence on premium
Continuation Dependent	43	<1%
Continuation Employee	45	<1%
Conversion to Non Group	42	1% to 3%
Dependent Student/Adult	34	<1%
Disabled Dependent	42	1% to 3%
Newborn	51	1% to 3%

As we’ve discussed before here at Show-Me Daily, injecting competition into the insurance market is really the only long-term solution that will both increase coverage and lower health care costs. Sarah Brodsky has also suggested tuition tax credits for autistic children as another alternative to insurance mandates.

Regardless of how one looks at the issue, mandates do not serve as a solution. The list provided by CAHI contained 130 different mandates throughout all of the states and Washington, D.C. Health insurance would be prohibitively expensive for far more people if every policy had to cover all 130 items, and there will still be many other conditions or diseases that are not covered. Does every 20-year-old want insurance against Alzheimer’s disease? Does every 60-year-old want insurance against autism?

With more choice in the insurance market, people can better choose for which illnesses or conditions they wish to be insured. Eliminating the way in which insurance is tied to employment and encouraging health savings accounts would allow individuals to purchase portable, cost-effective policies, saving for foreseeable health-related expenses while hedging against unknown future risk.

David Stokes Takes Out a Payday Loan

Posted on June 15, 2010May 5, 2026 by David Stokes

Check out the latest entry in our series of economic performance art pieces, in which I take out a payday loan and then quickly lose most of the money at a casino:

Accompanied by my trusty colleauges, John Payne and Josh Smith, I decided that if we were going to write about the payday loan industry we should know exactly what the process involves. I think John summed it up best in the video when he pointed out that it took him less time to buy cars than it took me to get $50 from a payday lender.

Additional Negative Consequences of Targeted Tax Credits

Posted on June 14, 2010May 5, 2026 by Christine Harbin

The June 2010 issue of Governing features an article about the discussion surrounding film tax credits. Despite the fact that I’ve written about this topic extensively on this blog, there are some negative consequences that I haven’t specifically discussed yet.

In the following excerpt, the article identifies one of the most significant problems with tax credits. Although it cites film tax credits specifically, this problem applies to targeted tax credit programs in general (emphasis mine):

The worry, [Massachusetts State Representative Steve] D’Amico says, is that states’ one-upmanship may have created an irreversible system of incentive handouts. Offering these kinds of broad tax incentives to film companies isn’t creating a permanent new industry in Massachusetts; it’s merely setting the state up to pay an ongoing subsidy it can’t easily get out of.

The article also identifies additional problems that result from the transferability of these credits, such as they are in Missouri:

Getting good data isn’t the only problem. “These film credits have another shoe to drop,” says [Robert] Tannenwald of the Center on Budget and Policy Priorities. He’s referring to the fact that in most states, the incentives paid to movie studios are transferrable. That means a film producer can sell unused credits on a secondary market. As a result, the credits could wind up benefiting people who have nothing to do with movies or entertainment. Worse, Tannenwald says, reselling the credits means they may be redeemed years down the line.

Unredeemed tax credits represents a huge liability for a state. According to the state audit of Tax Credit Cost Controls released in April 2010, the size of this liability is significant and difficult to estimate (emphasis mine):

Based on the 63 tax credit analysis forms submitted by state agencies administering tax credit programs for the current legislative session, tax credits totaling $500.6 million have been issued but not redeemed as of June 30, 2009. The Committee on Legislative Research, Oversight Division issued a program evaluation, Review of the State of Missouri Tax Credit Programs, in March 2010 which reported the estimated amount of tax credits issued in previous years and not yet redeemed as of June 30, 2009, was approximately $496 million. The Joint Committee on Tax Policy compiled a report of DED administered credits as of October 1, 2009, which reported an estimated total state tax credit liability of about $2.38 billion comprised of $599.8 million tax credits issued but not redeemed, $686.9 million tax credits authorized but not yet issued, and $1.094 billion in streaming tax credits that have been authorized and will be issued as the program requirements are met. The amount reported for the streaming credits estimates only tax credits that will be issued from October 2009 through fiscal year 2014. The amounts stated in this section are based upon estimates from the agencies administering tax credit programs. The exact amount of tax credits that will ultimately be issued and redeemed is unknown due to future actions of tax credit recipients and carry forward and back features of individual programs.

When these tax credits are redeemed in the future, it could cause the state to run a deficit, or exacerbate an existing deficit. Even if a state were to scale back or eliminate its incentive program (as has been done in Arizona, Michigan, Iowa, and New Jersey), it could still end up paying out credits in the future as they are redeemed. The uncertainty of when these tax credits will be redeemed makes it difficult for policymakers to forecast and plan future budgets. The tax credits will be redeemed at some point — just not necessarily during the same year that they were issued.

Missouri residents would be better off if the state government widened the tax base by eliminating targeted tax credits instead of continuing to subsidize specific industries in the market.

Health Literacy Programs Only Treat Symptoms

Posted on June 14, 2010May 5, 2026 by Caitlin Hartsell

The Fulton Sun (link via John Combest) ran an article about a campaign to improve health literacy in Missouri, aiming to increase individuals’ understanding and ability to use health care resources. Health Literacy Missouri is working on this effort in conjunction with the Missouri Foundation for Health:

The goal, said Arthur J. Culbert, president and CEO of Health Literacy Missouri, is that “information needed to make healthy decisions is available to all, and is easy to understand.”

But, he told a Thursday afternoon news conference, the new national plan is based on an understanding that “nearly 9 out of 10 adults have difficulty using the everyday health information that is routinely available in our health care facilities, retail outlets, media and communities.”

The low health literacy in Missouri is a result of two systemic breakdowns: one in education, and one in health care.

In education:

“[M]ost medical information is written at a 12th-grade level or higher,” Culbert explained, “and the average reading level in the United States is somewhere around sixth to seventh grade.”

The low reading level in America is in part a result of students remaining in failing schools, which is something that the school choice and educational reform movements are hoping to remedy. Beyond improving health literacy, improving functional literacy will improve a person’s job prospects and quality of life.

Even if one’s reading ability is sufficiently developed, understanding the jargon and complex structures of the health care system still confuses most people. The bureaucratic muddle that is our health care system is a large part of the reason that health literacy is difficult for many. That complexity is only increased by the wide array of types and levels of governmental involvement in the health care system.

Improving education and reducing the complexities in the health care system are vital to any efforts to truly improve health literacy in the United States. Health literacy is important, but focusing only on the symptoms of a systemic problem is not a long-term solution.

Should We Save, or Should They Go?

Posted on June 14, 2010May 5, 2026 by Thomas Duda

No one wants businesses to abandon communities. After all, here in St. Louis we saw what happened to Downtown West after Union Pacific moved 1,000 employees to Omaha, Neb.: stagnation and a void, only to be filled years later by subsidized housing units that our residential vacancy rate suggests are unneeded.

So, now that we have an opportunity to “save,” “keep,” or “retain” — choose your favorite active verb — yet another downtown employer, Peabody Energy Corp., through an outlay of millions of dollars, our local elected officials contend that local government faces the prospect of either doing something or doing nothing. If St. Louis does nothing, then the city faces the prospect of possibly “losing” 500 jobs, which could tarnish the “image” of downtown. If St. Louis does something, then the city could pat itself on the back for giving tax dollars to a Fortune 500 company.

Development “incentives” are anything but. On their face, they may appear to influence the course of business development, affecting company decisions to locate or to relocate. In reality, private market forces and intangibles determine business behavior in the marketplace.

As best I can discern, the only behaviors that government “incentives” encourage are the development of relationships between government officials that have been statutorily charged with bestowing our money to entities of their choosing and the corporations that so often laugh all the way to the bank.

Here at the Show-Me Institute, we have a different term for “incentives” of this variety: Corporate Welfare.

The provision of these welfare benefits on a case-by-case basis creates such a distorted environment for the exchange of goods and services as to necessarily disadvantage all market actors that do not receive the benefits in question. Ironically, rather than solving problems, these programs create problems, most notably that of rent-seeking by others.

At the end of the day, when the 10-year bonds or the five- to 25-year tax abatements are firmly in place and not subject to judicial abrogation, they do nothing to address underlying business conditions that make plausible a company’s purported threats to relocate.

Government incentives for some create an economic burden on others, ultimately proving a disincentive for many to engage in commerce.

Count me among those supportive of the position that it’s unwise when local government spends tax money in this manner.

Cheapest Smokes in the Nation

Posted on June 14, 2010May 5, 2026 by Martha King

In just a few weeks, Missouri will become the least expensive state in the nation to purchase cigarettes. In May, South Carolina legislators voted for a 714-percent tax increase on packs of cigarettes (effective in July), soon making Missouri the state with the lowest tax per pack.

Efforts to increase Missouri’s cigarette tax have been around for a while, and are often couched as an incentive to get smokers to quit and improve public health. The issue is now back on the radar in states like Missouri that are struggling to balance their budgets.

Using the Show-Me IDEAS tool, I was able to compare cigarette taxes across states. This chart shows the nation’s average tax at around $1.30 per pack, far higher than Missouri’s 17 cents per pack:

Click image to enlarge

Illinois legislators recently put a $1 per pack hike proposal on hold until later this summer. If this goes through in Illinois, smokers along the border and in the Metro East can look to Missouri for the cheapest cigarettes in the nation — but only if Missouri can hold on to its new title.

Although the majority of Americans don’t smoke, a new poll suggests that most voters would favor increases in tobacco taxes as an alternative to state budget cuts. This kind of discrepancy demonstrates one of the main problems with cigarette taxes — those least directly affected by the tax feel justified in imposing a tax on those most affected.

John Stuart Mill had it exactly right. Only six years before the appearance of cigarette taxes in America, he wrote in On Liberty:

The majority have not yet learnt to feel the power of the government their power, or its opinions their opinions. When they do so, individual liberty will probably be as much exposed to invasion from the government, as it already is from public opinion. But, as yet, there is a considerable amount of feeling ready to be called forth against any attempt of the law to control individuals in things in which they have not hitherto been accustomed to be controlled by it; and this with very little discrimination as to whether the matter is, or is not, within the legitimate sphere of legal control; insomuch that the feeling, highly salutary on the whole, is perhaps quite as often misplaced as well grounded in the particular instances of its application.

“You Keep Using That Word. I Do Not Think It Means What You Think It Means.”

Posted on June 11, 2010May 5, 2026 by John Payne

Because I’m a masochist, I have actually read through some of the comments to this op-ed on mandating autism insurance by the Show-Me Institute’s own Caitlin Hartsell. Unsurprisingly, they are mostly unfavorable. Most of the comments don’t attack Hartsell’s reasoning or even her conclusions, but seem to assume that because there is a problem (children with autism need treatment) that government action (a mandate forcing health insurance to cover autism treatments) will solve the problem and not cause any negative unintended consequences. These are just further examples of the government-as-magic school of thought. That’s certainly distressing, but I see it so often that I’ve come to take it for granted.

What I do find shocking in the comments is that some people don’t seem to be even remotely familiar with how insurance is supposed to work. The best example comes from commenter bogie90:

And do you buy autism insurance before your child is born just in case they have autism? Who would do that? And the insurance companies aren’t going to cover after the fact, remember pre-existing conditions?

Yes, of course you buy it before the child is born in case they have autism. That’s what insurance is for: to protect you against tragic but unlikely outcomes. You buy fire insurance for your house just in case you have a fire. However, you can’t insure your house against fire once it has the pre-existing condition of being on fire. At that point, insurance is just dollar trading to repair the damage from the fire. This might be one of the big problems with the debate over health care: people do not actually know what health insurance is.

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