Saturday, September 02, 2006

Canadian Recession Looming ?

Bloomberg News -

“Canadian employers unexpectedly shed 5,500 jobs in July, marking the first consecutive monthly declines in almost two years, strengthening the case for the Bank of Canada not to raise interest rates again this year.

“The unemployment rate rose to 6.4% from 6.1% in June, which was the lowest since 1974, Statistics Canada [reports]. The labor force, the number of Canadians 15 and older holding or looking for a job, rose by 64,200. [...] Canada lost 4,600 jobs in June.

“The report suggests [that] Canada's 15-year economic expansion may be weakening, as a strong currency slows exports and a higher benchmark interest rate makes it harder for businesses and consumers to borrow and spend. The most recent StatsCan figures showed economic growth stalled in May for the first time in eight months.”

And speaking of Canada, this bit has not much to do with their economy, but it does mention Canada:
[T]he reason that California is so hot to raise taxes on cigarettes to about $7 a pack is [so] that there will be a boom in smuggling, as Canada has [had], which has contributed to a drop in the sales of legal smokes [there] by almost 9% in the last year, since they instituted such a tax.

So the proposed enormous tax on cigarettes is really just a "New Jobs for the Smuggling Industry" government program, giving the unemployed-and-desperate something to do to get some cash, as dealing in drugs and prostitution won't even make ends meet anymore.

- Richard Daughty

And from Canada, to taxes:
According to a survey [...] by the tax services firm CCH, Rhode Island and Washington are among the most heavily taxed states when it comes to cigarettes and gasoline. In Rhode Island, consumers pay a 30-cent per gallon gasoline tax and $2.46 per pack cigarette tax, the highest in the country. In Washington State, smokers pay an additional $2.025 for each pack of cigarettes, and drivers have to cough up an additional 34 cents for every gallon of gas, making it the highest state gasoline tax nationwide.

That's a far cry from Georgia, which only levies an 7.5 cent tax at the pump, or South Carolina which adds a mere 7-cents to cigarettes.

- CNN Money

Two bucks a pack and 50¢ a gallon seem like reasonable levels of taxation to me, which means that most states are undertaxing cigarettes, and all are undertaxing gasoline, by my standards. Since most states have income taxes, and most states are also currently running budget surpluses, I suggest that they raise their taxes on go-juice and coffin nails, and sharply lower their rates of taxation on income, particularly for the bottom half of earners.

A lot of middle class people would like to see property taxes cut, but as property taxes are, in part, a tax on consumption, I favor cutting income taxes instead.


Blogger Hey Skipper said...


Two bucks a pack and 50¢ a gallon seem like reasonable levels of taxation to me, which means that most states are undertaxing cigarettes, and all are undertaxing gasoline, by my standards.

I'm curious as to what your standards are.

Around 1994, (source is the WaPo, but I don't have a link), a couple economists analyzed cigarette smoking to determine what the tax should be to cover the excess health costs.

Turns out to be $0.32 per carton. And, as they freely admitted, that was a first-approximation cost, with the assumption that smokers in fact impose additional costs on the health care system, as opposed to the same costs sooner. Everyone dies, most get sick before doing so; it isn't clear that smokers impose greater life-cycle costs on the health care system than do non-smokers.

Regarding gas taxes. IMHO, state gas taxes should be sufficient to cover the cost of building and maintaining the surface transportation network, period. This would leave "mass" transit liable only for its own operating costs (which it never covers). This of course, means gas taxes are excessive, because there is a considerable amount of money generated by sales taxes on car sales -- both new and used -- and various types of repair.

I'll bet that in most states, various taxes on private transportation far exceed construction and maintenance costs.

(In a similar vein, many people complain that the government subsidizes airline travel, but it takes a lot of hand waving about unspecified secondary costs to reach that conclusion.)

September 02, 2006 2:09 PM  
Blogger Bret said...

Since you have to tax something, I have no problem taxing "sin". I have no problem not taxing "sin" either, whatever the voters want works for me.

As far a taxes on gas goes, I think that there are some arguments for a very high federal tax on oil.

The first involves national security. Certainly it would be better if various murderous regimes that just happen to be sitting on large puddles of crude received less revenue. That would slow their quest for nuclear weapons and the like. High taxes on oil would do two things: depress demand and spur innovation into alternatives. Both of these would have the desired effect of reducing the revenue to oil rich nations.

The second involves the environment. Whereas I'm more skeptical than most when it comes to global warming, I do think that injecting CO2 into the atmosphere at a relatively rapid rate could potentially lead to system instabilities. I do think that those instabilities are probably measured in many millennia, but ya never know. In this case, we'd need to tax coal as well.

One thing to consider is that if the gas/oil/carbon tax is revenue neutral (i.e., other taxes such as taxes on investment and income are reduced to offset the increased revenues from the oil tax) then it should have limited effect on the economy. Sure, the devil is in the details for how to do it and make it fair, but it's plausible to me that it could be worked out reasonably.

September 03, 2006 7:02 PM  

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