How Junk Science Is Used to Raise Taxes

Written By: Joseph Bast
Published In: Budget & Tax News
Publication Date: December 1, 2007
Publisher: The Heartland Institute


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Junk science--the deliberate representation of false or misleading information as credible scientific research--is a growing problem in a variety of public policy debates.

The use of junk science in public policy debates in the United States has a long history--Rachel Carson's book Silent Spring, published in 1962, is often credited with launching the modern wave of false alarms.

But while junk science is often debunked, its impact on taxpayers is often overlooked.


Global Warming Alarmism

Global warming alarmism may become the latest case of junk science costing consumers and taxpayers billions (or even hundreds of billions) of dollars. Raising energy taxes was once thought to be the third rail of politics. Everyone remembers what happened when Bill Clinton tried to do it in 1993 and faced a major public backlash. But that was then.

Now, with global warming alarmism running interference, politicians are increasingly supporting higher taxes on energy or carbon emissions or policies that would raise energy costs indirectly, via renewable fuels portfolios, ethanol mandates, and a cap-and-trade scheme.

This effort is gaining momentum even though most scientists don't believe forecasts of future climates are reliable, and even though most economists believe energy is already taxed at or above the level necessary to account for any "negative externalities" caused by its use, including the possibility of global warming.

Economists estimate a carbon tax big enough to reduce U.S. emissions by even a relatively small amount would force consumers to pay $200 to $300 billion a year in higher energy costs. Looking at state and local energy conservation programs already adopted, we might even be a quarter or halfway there already.

But perhaps you don't think politicians have the nerve to do this. Or that the public is paying close enough attention or will get off their couches to oppose it. Consider, then, the strangely similar case of tax hikes on cigarettes.


Master Settlement Agreement

A vivid example of junk science leading to massive tax hikes concerns cigarette taxes. Because it is no longer politically correct to smoke, I should point out that you don't need to be a smoker, or even doubt that smoking can be deadly, to understand that junk science has driven much of the debate over tobacco policy in recent years.

Before the Master Settlement Agreement (MSA) was signed in 1998, nobody thought politicians would dare to raise taxes on cigarettes by more than a few cents a pack a year. Every tax hike proposal at the state and federal levels was vigorously fought.

Because taxes on cigarettes couldn't be raised through legislation, the anti-smoking movement took to the courts. Thousands of lawsuits were filed against tobacco companies, but virtually none was successful. A longstanding legal precedent was that smokers assumed the risk of their habits by continuing to smoke after being warned of the hazards.


Stealth Tax

Stymied again, the anti-smoking movement tried a different legal tactic: Getting state attorneys general to sue tobacco companies for smoking-related health care spending allegedly incurred by state Medicaid programs. As Kip Viscusi vividly demonstrates in his 2002 book, Smoke-Filled Rooms: A Post-Mortem on the Tobacco Deal, the claim that smokers imposed greater costs on society than they were already paying in excises taxes was simply junk science.

Viscusi demonstrates smokers paid their own way even without taking into account the fact they typically die six to seven years before nonsmokers. Viscusi figured smokers incur higher medical costs of about five cents per pack of cigarettes, but save taxpayers 11 cents per pack due to lower nursing home costs and nine cents per pack due to lower pension costs. "On balance," he writes, "smokers incur about 14 cents less per pack in costs paid by Massachusetts [a typical state], while contributing an additional 51 cents per pack in excise taxes."

The MSA raised the indirect tax by between $0.50 and $1.00 a pack, but the tax never showed up on a smoker's receipt as a "tax." Many politicians and liberal activists held their breath ... and were dumbfounded by the absence of public outcry.

Turns out, smokers tend to have modest incomes and lower rates of participation in politics than the rest of the public. With the tobacco industry unwilling to fund the creation of pro-smoker organizations, there was no effective opposition to higher taxes on tobacco products.


False Claims

More junk science about the social costs of smoking then arrived on the scene, in the form of a 2006 report by the U.S. Surgeon General widely touted as proving "secondhand smoke is not a mere annoyance, but a serious health hazard."

But the seemingly impressive 727-page report on secondhand smoke released by the Surgeon General's office came up far short of the usual standards for sound science. Nearly all the studies cited in the Surgeon General's report wouldn't pass muster in a court of law because they are observational studies, the sample sizes are too small, or the effects they show on human health are too small to be reliable.

Most of the research cited in the Surgeon General's report was rejected by a federal judge in 1993 when EPA first tried to classify secondhand smoke as a human carcinogen. The judge said EPA cherry-picked studies to support its position, misrepresented the findings of the most important studies, and failed to honor scientific standards. The Surgeon General's report relies on the same studies and makes the same claims EPA did a decade ago.


More Hikes

Nevertheless, widespread fear of the health effects of secondhand smoke has acted as a cover for state governors and legislatures to stick their toes in the once-hot water of raising taxes on cigarettes. To their surprise, it wasn't so hot after all. After early defeats, they started winning. Now, tax hikes of $1 a pack and more routinely pass at the state level.

This year another threshold was passed when a federal tax hike of 61 cents a pack passed the Senate and House. Only a veto of an SCHIP expansion bill by President George W. Bush, for reasons unrelated to the tobacco tax, stood in the way.

These tax hikes haven't destroyed the tobacco industry. They "just" transfer hundreds of billions of dollars a year from smokers to governments each year. They represent a huge defeat for advocates of limited government.


Lessons Learned

The Master Settlement Agreement and the recent huge tax hikes on tobacco products offer three cautionary lessons. First, it's always a mistake to walk away from the scientific debate. Left unchallenged, junk science is a powerful weapon in the hands of those who want to expand government and raise taxes.

Second, it is a mistake to assume industry will come to the rescue of its customers. Tobacco companies endorsed the Master Settlement Agreement and often haven't shown up when big tax hikes are proposed. Oil and gas companies are now jumping onboard the global warming express, happy to profit from the latest public scare.

Finally, just because a certain policy or tax was considered off-limits a decade ago doesn't mean elected officials won't vote for it today. Conservatives shouldn't dare politicians to impose a carbon tax thinking they would lack the nerve to vote for such a tax.

The tremendous noise generated by junk science campaigns provides cover for politicians to raise taxes and take other positions that would, in quieter and more reasonable times, threaten their political careers.


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Joseph Bast ([email protected]) is president of The Heartland Institute and publisher of Budget & Tax News.