Sunday, April 14, 2013

Thank You for Smoking? : The President's Pre-K Proposal

Obama's plan for universal pre-K has gotten fairly positive treatment among liberal journalists--one of the positives to counter-balance the negative coverage of his attack on the landmarks of the American welfare state.

One of my main questions after hearing about the proposal for universal pre-K several moths ago was how it would be funded, especially as the President promised it would be "deficit-neutral."  Our education funding is greatly inequitable, as can be demonstrated in my home metro area of Philadelphia.  Suburban schools have much higher spending per student than do urban schools, a result of the reliance on property taxes as a funding base among other reasons.  For children in their formative years, the imperative to have ample and equitable funding for educational resources is even stronger.

The President's budget describes the funding mechanism for universal pre-K in the following manner:

 o    The Preschool for All initiative is financed by raising the Federal tax on cigarettes and other tobacco products, which would also have substantial public health impacts, particularly by reducing youth smoking
I love sin taxes.  I love soda taxes, cigarette taxes, and alcohol taxes, and I'd probably create some new ones if I could.  But this is a bad use of sin tax revenue.  You raise taxes on cigarettes because they are damaging to personal and public health and because society incurs a cost (in increased health expenditures in Medicare and Medicaid, for instance) as a result of such individual decisions.  A "sin tax," consequently, is a form of Pigovian tax, a tax on a market activity that produces negative externalities, and it is designed to decrease the frequency of the activity in question.  Likewise, the revenue from such a tax can be used to address the problem as well.  Tax revenue from tobacco consumption can be used to fund public health programs and initiatives, working to mitigate the effects of smoking and curb current and future smoking rates through non-economic means.  Soda taxes, likewise, can contribute to the funding of nutrition programs. 
In classical economics, a Pigovian tax just helps to reach the "market equilibrium" of an externality-producing activity.  However, I would never argue for the existence for a "market equilibrium" of tobacco consumption just as I wouldn't for pollution.  Government agencies such as the FDA and the NIH want the smoking rate to trend down as it has done for the past few decades.  As the attached link shows, the smoking rate almost halved from the early 1980s to the present.  As the consumption rate continues to fall, the revenue from tobacco taxation would fall as well.   If the revenue gained were allotted to public health (as noted above), when consumption falls, the need for the corresponding preventive and corrective programs would fall as well.

According to the White House's funding mechanism for pre-K, however, the more people that smoke, the more money we have for pre-K, and a decrease in tobacco consumption actually threatens the viability of the program.  That, from a public health perspective, is simply perverse.  If the President wants to go back to old habits, he can do so if he chooses, but he can't say it's "for the children."

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