Should “Big Tobacco” run the government?

Baltimore — (TFN): If politicians would get their heads out of their re-election campaigns, they would not have to make hasty, thoughtless decisions that cost you and I money.

In the days following Obama’s inauguration, Washington quickly passed a wide set of tax reforms. Part of the legislation included a $400 tax break for the country’s working class and increased healthcare funding for the country’s poor, unhealthy children thanks to increased taxes on the tobacco industry.

It is no surprise neither measure has worked out as planned.

According to reports today, more than 15 million of us will have to pay back the $400 we saved in taxes over the last few months due to an error on Washington’s end.

I hope Uncle Sam doesn’t expect interest on his loan come April.

The news out of the tobacco industry helps us continue our discussion on regulations. The good and the bad.

Winston Churchill once said, “If you have ten thousand regulations, you destroy all respect for the law.”

The great orator hit the notion perfectly. With Congress working on reform after reform, the American people eventually became deaf to the noise from Washington.

Worse yet, we became savvier at circumnavigating weak legislation. Just ask the tobacco industry.

In an effort to fund children’s healthcare, the Obama administration levied a massive 2,000% tax hike on the nation’s roll-your-own cigarette industry. Taxes for the tobacco used to roll a custom smoke rose from $1.10 per pound to $24.78 per pound.

Washington figured the massive increase would deter smoking and create well-needed revenue care of the folks that refuse to kick the habit.

As you can likely deduce, it didn’t work.

What happened was manufacturers ripped off one label and slapped on other. Roll-your-own tobacco production plunged while pipe tobacco production, with its $2.83 per pound tax, soared.

Before the tax, pipe tobacco demand was just 270,000 pounds per month. Just a few weeks later, it hit 1.7 million pounds.

Turns out Washington had no idea pipe tobacco was so similar to the roll-your-own stuff that it could be considered a direct replacement.

The mistake is now costing the government some $384 million annually in lost tax revenues.

Once again, it proves the markets are always a step or two ahead of new regulations.

Barney Frank may think he can write a law that tells Wall Street to behave, but in reality all he’s doing is pushing the action from one unlit corner to the next.

I can’t wait to see what they come up with next.

The response from the “real world” is almost always ingenious, like a classic Tom and Jerry cartoon.

*** I sure hope the Fed knows what it is doing. With Big Ben stubbornly clinging to record-low overnight rates, the top inflation cop needs another trick to keep market forces at bay while still enticing a skittish economy to come out of its shell.

His latest trick? Paying interest on banking reserves left with the Fed. It is a trick used at other central banks to create a “corridor” that keeps rates from sinking too low or rising too high.

But many pundits don’t think the Fed is ready for such management “tricks”, especially as it sits on a massively inflated balance sheet.

I am one of them.

I am against the measure not because I feel it won’t work. It most certainly will work and has in the past.

I am against it because who in the world wants to give anybody in Washington any more power?

The Fed already owns the banking industry and now it wants to create even more opacity.

Over the last three days, we have seen more than enough examples of how increased government power fails. The more we mess with the markets, the harder they are to control and predict.

For all of you that constantly shout, “Fire the Fed,” here’s a tip of my hat. I’m starting to see the light.