Big Dogs Weblog

And More Maryland Foolishness

by Mr. Ogre on Jan 6, 2011 at 12:30 Political

Or, “Johns Hopkins University Professors Who Show Themselves As Fools.”

Maryland, like most governments today, wants more cash. They honestly don’t give a damn from where it comes, they just want more to spend. As government, they feel it is their right to continue to spend money and don’t understand the concept of “recession.” And also, apparently “economics” — including an apparent supporter of huge bloated government, one David Jernigan, a “professor” at Johns Hopkins. Hopefully a medical professor or something, and not one teaching basic math or economics.

You see, Mr. Jernigan supports raising the tax on alcohol. Why? Well, we may never know, but if he is like most professors, its because he believes that government is perfect and only government knows how to spend money, so the more money that government takes from working people to give to him (salary & “research”), the better. But that’s not what he says. Instead, he actually makes the claim that raising taxes on alcohol “is a win-win for the state. They provide much needed revenue, and reduce alcohol consumption and related problems”

Mr. Jernigan needs to learn some basic economics. Then again, he may already know this and not care. Either way, attention class, here comes the lesson:

Statement: You cannot raise taxes on an item and both increase revenue and reduce consumption. Those are opposite actions in the real world.

For example: Let’s say I sell 20 drinks at $3.64 each. With a tax of 10%, that’s a total of $4.00 for each drink, or 36 cents tax on each drink. The total revenue to the state in that case is 0.36 x 20, or $7.20. Now the state decides to increase the tax and add an additional 10 cents on each drink. When the price of an item increases in this economy, in general, the number sold will decrease. That part of Mr. Jernigan’s statement is correct. Let’s say the decrease in consumption is 25% — enough to be significant enough to meet Mr. Jernigan’s claim to reduce alcohol consumption. That means I will now only sell 15 drinks. As a seller, I cannot reduce my prices. Therefore, the price of the drink is still $4.00. Now add to that the 10 cents additional tax, and now each drink sells for $4.10. I still get $3.64, and now the state gets 46 cents. But I’ve only sold 15 drinks now, so the total to the state is only 15 x 0.46, or $6.90.

When you raise the taxes on an item, you will sell a smaller amount — but in this case that will result in a lower amount of revenue to the state.

Of course, in all likelihood, this action will result in an increase to the state because it will NOT result in a decrease of drinking. Instead, it will result in people needing to spend more money, so they will have to receive more through working, government handouts, or theft. Either way, the results Mr. Jernigan proposes are impossible.

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Tags: alcohol, econ 101, Maryland, taxes