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Archive for August 29th, 2010

In the private sector, no business owner would be dumb enough to assume that higher prices automatically translate into proportionately higher revenues. If McDonald’s boosted hamburger prices by 30 percent, for instance, the experts at the company would fully expect that sales would decline. Depending on the magnitude of the drop, total revenue might still climb, but by far less than 30 percent. And it’s quite possible that the company would lose revenue. In the public sector, however, there is very little understanding of how the real world works. Here’s a Reuters story I saw on Tim Worstall’s blog, which reveals that Bulgaria and Romania both are losing revenue after increasing tobacco taxes.

Cash-strapped Bulgaria and Romania hoped taxing cigarettes would be an easy way to raise money but the hikes are driving smokers to a growing black market instead. Criminal gangs and impoverished Roma communities near borders with countries where prices are lower — Serbia, Macedonia, Moldova and Ukraine — have taken to smuggling which has wiped out gains from higher excise duties. Bulgaria increased taxes by nearly half this year and stepped up customs controls and police checks at shops and markets. Customs office data, however, shows tax revenues from cigarette sales so far in 2010 have fallen by nearly a third. …Overall losses from smuggling will probably outweigh tax gains as Bulgaria struggle to fight the growing black market, which has risen to over 30 percent of all cigarette sales and could cost 500 million levs in lost revenues this year, said Bezlov at the Center for the Study of Democracy. While the government expected higher income from taxes in 2010 it has already revised that to the same level as last year. “However, this (too) looks unlikely at present,” Bezlov added. Romania, desperately trying to keep a 20 billion-euro International Monetary Fund-led bailout deal on track, has a similar problem after nearly doubling cigarette prices in 2009 then hiking value added tax. Romania’s top three cigarette makers — units of British American Tobacco, Japan Tobacco International and Philip Morris — contributed roughly 2 billion euros to the budget in taxes in 2009, or just under 2 percent of GDP. They estimate about a third of cigarettes in Romania are smuggled and say this could cost the state over 1 billion euros.

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Heading back to Washington after a couple of days at the High Lonesome Ranch and a couple of days at the Steamboat Institute Freedom Conference. The High Lonesome Ranch is a great example of private conservation, with some of the nation’s highest concentrations of black bears and mountain lions. The Steamboat Institute conference was a great gathering of free-market people. I spoke on (what a surprise) fiscal policy. The most amusing part of the conference was during Karl Rove’s speech, when he remarked that “Dan Mitchell thinks I’m a dangerous liberal.” I actually think he’s an operational statist, but read this, this, and this and you be the judge.

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U.S. News & World Report notes that the Environmental Protection Agency has rejected a scheme from left-wing organizations to ban the use of ammunition containing lead. This is a welcome decision, particularly since the EPA is a very radical organization that traditionally is willing to bend the law to advance ideological goals (proposing carbon dioxide regulations to push the global warming agenda through the back door, for instance, as well as regulating swampy land even though its jurisdiction applies only to navigable waterways). Kudos to the National Rifle Association and other groups that flexed enough muscle to scare off the bureaucrats at the EPA.

In a swift and unexpected decision, the Environmental Protection Agency today rejected a petition from environmental groups to ban the use of lead in bullets and shotgun shells, claiming it doesn’t have jurisdiction to weigh on the controversial Second Amendment issue. The decision came just hours after the Drudge Report posted stories from Washington Whispers and the Weekly Standard about how gun groups were fighting the lead bullet ban. The EPA had planned to solicit public responses to the petition for two months, but this afternoon issued a statement rejecting a 100-page request from the Center for Biological Diversity, the American Bird Conservancy, and three other groups for a ban on lead bullets, shot, and fishing sinkers. The agency is still considering what to do about sinkers. The decision was a huge victory for the National Rifle Association which just seven days ago asked that the EPA reject the petition, suggesting that it was a back door attempt to limit hunting and impose gun control. It also was a politically savvy move to take gun control off the table as the Democrats ready for a very difficult midterm election.

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