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Tobacco Tax Craziness



March 11, 2011

Once again, it’s budget season in state capitols across the country. And, once again, we see some lawmakers and interest groups pushing proposals to raise tax rates on cigarettes and other tobacco products under the guise of a “cure all” for the state’s fiscal woes, despite their well-known problems that argue against enactment.

Right now, we are being told that these sin tax hikes are a “Win, Win, Win” for the states. It seems as though every day these days, we see new poll results – typically funded by proponents of the tax hikes – informing us that “the vast majority” of taxpayers support higher cigarette and tobacco taxes, as opposed to budget cuts, to save the state.

Unfortunately, governors and lawmakers across the country have their blinders on, and are taking up these proposals. In Connecticut, Governor Dan Malloy has proposed a 40 cent per pack cigarette tax increase as part of his budget. Georgia’s tax reform commission proposed a 37 cent per pack tax hike; some want a $1 per pack increase! A senior lawmaker in Idaho wants to raise the state’s cigarette tax $1.25 per pack. Even Oklahoma is trying to get in on the tax hike game by considering a bill that would give economic development power to local government, which includes regulation of tobacco through new fees. West Virginia also has been trying, but thus far failing, to move a major tax hike through its legislature. Now, tax hike advocates are pushing opinion polls and proposals to raise taxes in North Carolina, Nebraska, and Montana, in some cases substantially. But that’s not all: there are now rumors that Illinois could try again to raise its cigarette tax (I guess raising Illinoisans’ income tax by 67% just isn’t enough when you fail to reduce spending).

But all of these proponents of cigarette and tobacco tax hikes are consciously ignoring the well-known problems associated with these sin taxes. Since the poor are more likely to smoke, tobacco taxes tend be paid most by the poor rather than the rich, Mercedes-driving country club members who work on Wall Street that seem to be the target of every tax hike since the dawn of time. Higher tobacco taxes are also costly to retailers, especially convenience stores, who count on cigarettes, chewing tobacco, and other products for as much as a third of their sales. What’s worse, several states that raised their tobacco taxes have reported shortfalls. I’m not sure how anyone thinks a state would “win” by raising a tax that drives business and tax revenue out of the state. But perhaps the most alarming development is that these problems are not new discoveres. In fact, we here at NTU (and countless others in the fiscal policy world) have been highlighting these problems for years. Yet, here we are again, making the same arguments because tax hike proponents and lawmakers cannot (or perhaps do not) wish to acknowledge reality.

Albert Einstein has been quoted as saying that the definition of insanity is doing the same thing over and over again, and expecting a different result. Given these organizations’ and lawmakers continued desire to raise taxes on cigarettes and tobacco products despite the well known problems with these types of taxes, it shouldn’t come as a surprise why the public thinks most politicians are crazy.


 

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