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Richmans' Trade and Taxes Blog
It is past time to levy a large excise tax on prescription opiods
While many of the costs of opiod addiction are borne by the addicts themselves -- costs that range up to and including 183,000 deaths according to CDC estimates for the period from 1999 through 2015 -- these costs also spread to the broader society in terms of treatment expenses, emergency response, crime, lost productivity, and much more. Hence, opiod addiction creates negative externalities for society, which some estimates put at 80 billion dollars.
A basic principle of the economics of managing negative externalities is that one should seek to make those creating the externality -- those involved in the production and consumption of opiods in this case -- pay for the external costs they are creating through their market transaction. And one of the easiest ways to do this is to impose a tax upon those transactions.
There have been some scattered efforts to do so. For instance Senator Joe Manchin of West Virginia has a bill in the Senate, and similar proposals have been introduced in California and Alaska. These proposals generally seem to err on the side of a tax that is too low, but they are a move in the right direction. Other addictive products that create negative externalities like Alcohol and Tobacco are taxed heavily. Prescription opiods should be no exception. And the tax should be high enough that it generates real incentives for consumers and doctors to think twice about reaching for the dangerous fix of an opiod prescription. A tax high enough to double the cost of the prescriptions might be about the right place to start.
One challenge in taxing opiods is that the costs of the tax may be socialized -- insurers might in some cases pick up the tax bill. While this is a concern, it could be readily addressed by allowing or mandating that private insurers directly pass the cost of the tax to consumers, and by mandating that public insurers do so.
Comment by Raymond Richman, 9/27/2017:
My first reaction is that I am opposed to new taxes. And I oppose a tax to discourage the legal use of a drug. The number of opioid users who overdose is a small fractioon of those who use the drug as prescribed. Why should they be taxed? Also i am skeptical about the costs to society being anywhere close to $80 billion.
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