no third solution

Blogging about liberty, anarchy, economics and politics


July 18th, 2007

Here’s a lesson from my forthcoming “Public Choice for Idiots.”

As a politician, you want to give people things for free. This can be education, health-care, laptop computers or iPods or cheese. It doesn’t matter. Now, in order to give people things for “free,” you need to get the money from someone else. Here’s one popular method:

  1. Choose a product with limited appeal. Bonus points if it’s a “luxury” good.
  2. Tax the motherfucking bejeezus out of it.  Bonus points if it’s “for the children.”
  3. ???

Unfortunately, the law of unintended consequences usually takes over at this point. A ten percent ad valorem on yachts literally decimated the domestic yacht-building industry, as Different River explains citing this paper by FEE:

Ocean Yachts in Weekstown[, NJ] trimmed its workforce from 350 to 50. Egg Harbor Yachts entered Chapter Eleven bankruptcy, going from 200 employees to five. Viking Yachts dropped from 1,400 to 300 employees. According to a Congressional Joint Economic Committee Study, the boat industry nationwide lost 7,600 employees within one year.

Apparently, Congressional Democrats figured that anyone who could afford to buy a luxury yacht could afford to pay an extra 10% tax. It turned out that anyone who could afford to buy a luxury yacht could also afford not to buy a luxury yacht. If you have lots of money, there’s always something else you can spend it on.

Never ones to learn from their historical mistakes (of which there are plenty), some ass-hats are proposing a twenty-thousand-percent tax increase on cigars. Twenty-thousand – as in four zeroes. 20,000%. The tax would rise from five cents to ten dollars. This of course, is terrible news for the domestic cigar producers and importers – 80% of which are located in Florida, and also for anyone who enjoys a decent stick from time to time:

Though the [Tampa, FL cigar industry] has shriveled from foreign competition and domestic consolidation, cigarmaking still employs more than 1,000 in Tampa. About 900 work at the factory, offices and warehouse of Hav-a-Tampa, owned by foreign tobacco giant Altadis…

…”Why don’t we just go out of business?” Newman said. “Here, you can run our company, Mr. Government.”

That’s what the Cuban families did. And Cuban cigars are little more than novelty items these days. Of course, some people are willing to pay $7 for a Romeo y Julieta, and there are people who are willing to pay $17 for a Davidoff or whatever costs $17, but by-and-large, they are different people. The person shelling out $17 isn’t going to spend $17 on a RyJ, and the people who weren’t spending $17 on arguably finer cigars before, are unlikely to spend that much money just to enjoy the same old $7 cigar.

Of course, the tax will probably pass – because practically nobody smokes cigars, and the industry doesn’t have a voice when it’s lumped in with Big Tobacco. This follows the above rules. The results of the tax will predictably be disastrous, as theory dictates: the industry will suffer severely, and revenue won’t be nearly as much as the tax’s proponents suggest. Over time, the revenue will fall as people find an alternative to the super-expensive cigars. And then the “children,” the alleged beneficiaries of this tax, will be without their health-care, again.



  • says on: July 18, 2007 at 1:22 pm


    It’s always the same M.O. isn’t it.

    First, the powers that be assume that demand for something is perfectly inelastic and won’t change if they make it more expensive.

    Second, they ignore all historic precedent when they assume they can tax themselves into prosperity.

    But remember… it’s for the kids.

  • Dan Z says on: July 18, 2007 at 6:47 pm


    You have to love that tax. Sure they are rich they can pay more or they can buy from elsewhere and the industry will move, but no doubt whatever gain could have been made from the tax is way more than offset by the loss of all those jobs in the region. Kudos again big government!

  • David Z says on: July 18, 2007 at 7:09 pm


    You know, it may even spawn a black market: From time to time, you still here about people getting busted with a truckload of cigarettes from Raleigh going into New York or Michigan.

    No reason why the same thing wouldn’t happen with cigars, eh?

  • Eric says on: July 19, 2007 at 3:32 pm


    F***. This p*sses me off double because I’ve just come to the point of enjoying a nice cigar once or twice a month. Now, for me, a nice cigar is about $7.

    I *won’t* pay $20 for it. I’ll get it illegally or not get it at all. Of course, that’s a predictable response to anyone who isn’t a politician or retarded.

    Further evidence that our finest never come close to running for office.

  • Dan Z says on: July 19, 2007 at 3:55 pm


    It also fails to make sense to tax what is such a small portion of the market, cigars selling only over 5 billion whereas cigarettes sell 400 billion. Im not saying they need to tax either, but it makes no sens if they decide to to raise cigar taxes 20,000%.

  • matt says on: July 23, 2007 at 9:30 am


    I’d be more upset if I wasn’t expecting it. Liquor or fatty food will be next.

no third solution

Blogging about liberty, anarchy, economics and politics