Nobody feels more strongly about high taxes than smokers do, and with good reason: it's incredibly easy for politicians to raise taxes on smoking, and the average non-smoker doesn't have a lot of sympathy. So it's no surprise that the news is full of stories about planned cigarette tax hikes. But why is it so easy to raise taxes on smokers? Why not bottled-water drinkers, car owners, or life insurance buyers? The reason is simple: cigarettes have the combination of addictive power and brand loyalty. Very few smokers give up if the cost of their smokes goes up 10% -- in fact, basically no other product has the long-term resistance to price changes. It's also popular among people who don't smoke. Most people are pretty happy to hear that someone else's vices are getting punished. In fact, people are willing to believe that smoking will get rarer if the price goes up (even though, so far, that has been only slightly true). So what should smokers think of this? If you spend much time reading about taxes, you'll find plenty of resentful smokers tired of paying so much per pack -- but notice that they're still paying, and will continue to pay even ...

It's an outrage -- handing someone millions of dollars when his employer is nearly bankrupt? It's ridiculous -- larding paychecks with taxpayer dollars? It's unacceptable -- paying out a giant bonus in the face of a huge recession? It's just business. Even though Barney Frank expressed outrage over AIG's recent bonuses, people are (deliberately?) forgetting that AIG is a massive company, with over 100,000 employees in 130 countries. And the team responsible for most of the offices was a remarkably tiny group of remarkably arrogant traders. If AIG's structured products team is collecting these bonuses, it is, indeed, an outrage. But it's much more likely that the bonus recipients aren't the same team at all. AIG has a huge variety of insurance businesses, and it invests the proceeds from its insurance in an incredible array of assets. Even at a time like this, there are numerous AIG employees who are capable of making the company millions of dollars (and this would be a good time for them to have some extra money). But think about those people: how happy would they be to work for AIG? If they got stock options for good work in past years, those options are worthless; if they ...

People are still talking about it. Ed Barnett's IRS letter made him famous -- but there's something missing from the story: what did the IRS say about it? It's usually a bad idea for them to respond to someone who complains about taxes like this. The classic response to tax complaints is "You get what you pay for," but Barnett's tax rant dodged that question by listing all the things he did pay for. It could be hard to ignore the letter, too. The complaints are legitimate, and it's getting mentioned in blogs, forums, and newspapers nationwide. Here are a few possible responses: More responsiveness: if Barnett could have gotten in touch with someone at the IRS, he might not have had to write the letter at all. Lower taxes, more fees: taxes you pay for doing something well (buying a building that went up in price, getting a raise at your job) are less popular than taxes you pay for things that are neutral or harmful (like a mileage tax or a cigarette tax). If we switch to more of those taxes, we might see lower revenue, but we'd have fewer expenses as well. More transparency: this one is actually a possibility, and would definitely ...

A single letter to the editor in a small Texas town has made it around the country in just a few weeks. Ed Barnett, a typical taxpayer, penned this justified rant to his hometown Wichita Times Record News (I am assuming their archrival is the Wichita Daily Weekly Recorder Courier Journal Democrat-Republican): Dear IRS, I am sorry to inform you that I will not be able to pay taxes owed April 15, but all is not lost. I have paid these taxes: accounts receivable tax, building permit tax, CDL tax, cigarette tax, corporate income tax, dog licence tax, federal income tax, unemployment tax, gasoline tax, hunting licence tax, fishing licence tax, waterfowl stamp tax, inheritance tax, inventory tax, liquor tax, luxury tax, medicare tax, city, school and county property tax (up 33 percent last 4 years), real estate tax, social security tax, road usage tax, toll road tax, state and city sales tax, recreational vehicle tax, state franchise tax, state unemployment tax, telephone federal excise tax, telephone federal state and local surcharge tax, telephone minimum usage surcharge tax, telephone state and local tax, utility tax, vehicle licence registration tax, capitol gains tax, lease severance tax, oil and gas assessment tax, Colorado property tax, ...

Today the IRS stopped using private tax collectors. That's right: they won't let a single tax mercenary collect overdue taxes. This sounds great -- less money spent on expensive government contractors, and less of our private information being leaked out of the government. But is it really the right decision? The basic argument against private tax collectors is that we're paying them to go after money people already owe the government. If they're not afraid of the Feds, the argument goes, why would they fear some random company? If the companies don't have any way to convince people rationally, it's a fair assumption that they're just using dirtier tactics than the IRS, and making 25% of what they collect in the process! But what if there's a better way to do the collecting? Keep in mind that this is money the IRS usually doesn't expect to see again -- people know they owe it, and they just won't pay. So, instead of pressuring them into giving the full amount, why not let these private companies negotiate a discount? Here's how it would work. Instead of a contract, there would be an auction: the IRS would sell ...

Reid Hoffman (CEO of LinkedIn, and self-proclaimed 'free-market socialist') says we should let startups bail us out. As an investor in more than sixty startups, he ought to know how effective they can be. His plan comes in three stages: He wants a program that will provide small loans (up to $50,000) for startups. He wants to change the current skilled-worker visa system, so that instead of a quota (65,000 H-1B immigrants per year), there's an unlimited number of immigrants and a 10% payroll tax on each, to be reinvested in job training for Americans. He wants the government to match investments for venture capitalists and angel investors (giving them 50% of the profits from any investment). There are a few problems with this plan. The first one is that, since he suggested it, Reid Hoffman has more or less permanently torpedoed any chance that this will take off. The plan gives him $3 million in cheap loans, a larger labor pool, and millions more in matching funds -- all at a time when those of us who aren't CEOs of billion-dollar startups are hurting for jobs and loans. Not only that, but the hedge ...

The Dow is back down to where it was last time we had a charismatic Democratic president making big, budget-busting promises. And this time, there's not an intern in sight to spoil the party. We all know we're in for a giant spending spree: billions for solar-powered underwater basket-weaving communes, all paid for by taxes on people who, y'know, make stuff and do stuff. But is it that big a disaster? Obama spent ten years teaching at the University of Chicago, a center of modern conservative thought. Did a decade of rubbing shoulders with Milton Friedman's disciples rub off on him at all? The answer is yes. In his budget speech last week, he announced several new programs that are near and dear to conservatives. Here's why you should be excited about Obama's new budget: Did you like Ike? Obama's infrastructure plan is finishing what Eisenhower started. Fifty years after Eisenehower spearheaded the new interstate highway systems, we're finally going to stop scrimping on maintainence. Ike wouldn't want to see bridges falling; neither should you. Know what he means when he says 'reform'. The people who voted for Obama didn't vote for spending cuts. But that's just what Obama promised when he talked about ...

Congratulations: you, the taxpayer, now own even more of what used to be America's biggest bank. That's right: the government is once again raising its stake in Citigroup by switching from preferred stock (which pays a high dividend, and is basically like a bond) to common stock (which is closer to just owning part of the business). So, in theory, We The People own 36% of Citibank. And this is considered very big news. But is it? Consider how much the government is already involved in Citi: Most of Citibank's deposits are guaranteed by the FDIC. Which means that when you deposit money at Citibank, you're really lending it to the government, which is lending the money back to Citibank. Citi is mostly doing the paperwork. Citi makes loans with those deposits. Who do they loan to? Mortgages and government bonds make up a huge chunk of the portfolios of many banks, and, once again, those are loans to the government. Government regulations control how much they can borrow, how much they can lend, what they can lend to, where they can lend, what kinds of loans they can resell, and who they can deal with. The government has veto power over everything Citibank does. Citi ...