July 29, 2005
The Trouble With the Welfare State
Posted by Will Baude

Jonathan Cohn has a piece up at The New Republic arguing for a "twinkie tax", which is to say a tax on saturated fat and transfatty acids. Cohn is quick to acknowledge that it is not enough that government wants to save people from making themselves fat, but argues that financial externalities justify the heavy regulatory hand.

As taxpayers, we all bear the burden of higher medical costs--either directly, by paying for Medicare and Medicaid, or indirectly, by subsidizing employer-based health insurance (which is tax deductible). So, when some people choose to eat poorly, we all end up bearing the financial burden for their decisions. A Twinkie tax would help rectify this, however modestly.

First off, note that this argument is usually rejected in the context of Medicare and other federal welfare programs. The whole idea of government-collectivized social insurance programs is that people do not simply pay for their own follies. I am not positive this is a good idea, but it does seem to be the idea. People who choose not to exercise regularly, fail to brush their teeth twice a day, buy Pontiacs instead of Volvos, drive instead of flying, or work jobs in factories rather than doing menial office or janitorial work are not exempted from Medicare coverage or the income-tax-health-care-deduction simply because they brought their problems upon themselves. People do (and should) make tradeoffs between health and other kinds of happiness, and for better or worse we regularly subsidize those who pick happiness over health.
[I happen to think that the income-tax-health-care-deduction is a bad idea in a progressive tax system, because it disproportionately favors the rich, but that is a chat for another day.]
So even though there is something intuitively appealing to the notion that we should tax those who impose big costs on the health care system, skeptics are entitled to ask-- why single out this cost? Why not tax unsafe cars, or unsafe drivers, or people who drive at all? Why not tax those who fail to brush their teeth, or who work dangerous jobs, or who engage in perilous sexual practices? And so on. If the response is that those taxes and regulations will come too, some day, then we are entitled to ask, why start here?
I have been assuming for the sake of argument that those who consume transfats and saturated fats really do impose net costs on the government welfare system. But I have no idea whether this is in fact the case. People used to raise similar arguments about smokers, but Kip Viscusi (among others) convincingly showed that cigarette smokers in fact save the medical care system money because many of them kill themselves off so quickly. So I would also like some more careful evidence of the medical-costs argument, even though I argue that it is irrelevant.
And for that matter, let us suppose that we agree with Cohn about the empirical question-- that eating transfats costs the welfare system-- and let us suppose that we also agree that for some reason the consumption of fats should be singled out, rather than any other unhealthy practice. Why is Cohn's proposed solution-- a health-care-dedicated fat tax-- the right one? First of all, the fungibility of federal funds makes it unclear how much good it will do to dedicate the tax proceeds to health care. Second of all, this will not totally remedy the problem Cohn raises. People who eat twinkies in moderation and develop no related health problems, or who eat immense quantities of saturated fats but kill themselves first with lung cancer, or who simply have arranged for health care that is not particularly subsidized by the federal government, will all be forced to pay more for their food, even though they are not costing the health care system any money at all. We will replace one alleged unfairness with another, and it is not clear it will be an improvement. If we want to keep federal medical welfare programs, but also want to single out unhealthy consumption of saturated fats for punishment, why not simply make those who develop saturated-fats-related-health-problems (defined imperfectly) ineligible for subsidized treatment of those health problems? This too would be imperfect, but it would approximate Cohn's idea of fairness more closely than his own plan.
It is arguments like this that make us libertarian types so nervous about the pervasiveness of the welfare state. As Virginia Postrel has pointed out, once everything is government taxed and subsidized, then every private decision can become an allegedly public one. At first, this made my Federal Income Tax class invigorating and exciting-- every life decision was also a tax issue!-- as the semester went on, though, I realized how frightening that was. The power to spend, John Marshall might have noted, is the power to destroy.

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