Klar: Government regulation and ‘moral tracing’

By John Klar

Vermont’s recent $28 million windfall from years of wrangling with the tobacco industry offers insights into the role of government regulation in society. Regardless of one’s view of the appropriate degree of governmental regulatory control, this payment raises a completely different set of issues — what is government’s “place” when redistributing collected funds.

John Klar

In accounting terminology, there is a concept of “tracing” funds. This can apply literally, as for instance with illegal or fraudulent transfers, or fictionally, as in LIFO and FIFO systems, where we pretend to “trace” an individual unit of inventory and its related economic value. We do the same thing as individuals when we save money in a piggy bank for a vacation, or to pay off a debt — we trace, or allocate, those specific funds to a specific cause.

The state of Vermont actively traces its citizens’ funds along moral channels. For example, it advertises the Vermont lottery for ticket sales, and also how much money the lottery has diverted to the education fund. I here term this “moral tracing.”

Our state is collecting $28 million (in addition to the $22-$29 million it already receives annually) for the pain and suffering of cigarette smokers, and has immediately announced that $14 million will be used to combat the opioid crisis. This is moral tracing, and appears to be as unchallenged as creating a government-run lottery racket (that causes profound addiction and preys on the poor) to ‘fund’ education. But in truth, that $28 million, along with those lottery receipts, could as easily go into the general budget and then be considered in the normal course of legislative wrangling. The idea that the money is “set aside” is a tracing gimmick, not an actuality. “Moral tracing” is a political fiction.

If Vermont recovers moneys from the pharmaceutical industry that seeded our opioid crisis, will those funds be applied to lung cancer treatment for cigarette smokers? To education? To our growing tax crisis? Perhaps it would be sensible “moral tracing” to apply some of these state “windfalls” from citizens’ illness to pay down some debt — maybe the 2017 Series A and B General Obligation Bonds, which exceeded $105 million. Less debt would enable us to respond more effectively to future challenges, whatever their caliber.

It is one thing for government to regulate to protect citizens from improper predatory business conduct, but quite another to act as class-action recipient for a segment of the population. By what authority, and by what process, does our legislature decide to foist its moral tracings on us? Who decided that $14 million of this windfall would be used to fight the opioid crisis? Perhaps that is an appropriate allocation, but by what democratic process was it determined? And by what process will that other $14 million be allocated? Whether it goes to farmers, school security, special needs children, or paying off debt, it should perhaps be a matter of public discussion, for it is our morals the legislature is tracing.

Attorney John Klar farms, and writes, from his family land in Brookfield. Reprinted with permission from the Ethan Allen Institute Blog.

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