Medical Tuesday Blog

Gluttonous cigarette tax increases may be counterproductive

May 22

Written by: Del Meyer
05/22/2017 3:05 AM 

Wise Voters Largely Reject Tobacco Tax Increases

Preston Cooper

NOVEMBER 14, 2016

The tobacco tax increases on the ballot last week were earmarked for specific projects. Given that tobacco taxes are by construction an unreliable source of revenue, the funding for those projects would have been unreliable. When states pass tobacco tax increases, it would be better to simply direct the funds into general revenues rather than use them to support specific programs.

Voters across most of the country appeared to recognize this, or at least were skeptical of any kind of tax increase. The initiative in North Dakota would have quintupled the state’s tobacco tax, while the taxes in Missouri and Colorado would have doubled and tripled, respectively. 

The one initiative which succeeded, in California, will more than triple the state’s current tobacco tax, from 87 cents per pack to $2.87 per pack. The funds are earmarked for a variety of programs, including tobacco prevention initiatives, early childhood development, physician training at the University of California system, and public health programs.

Quizzically, the initiative both increased cigarette taxes and also implemented equivalent taxes on e-cigarettes, which are not tobacco products but do contain nicotine. According to the Royal College of Physicians, e-cigarettes are about 95 percent safer for the user than traditional cigarettes.

The rationale for increasing California’s tobacco tax thus stands on thin ice. If the tax is intended to reduce smoking rates, its success is dubious—the tax increase on e-cigarettes will neutralize one of the most promising avenues available to help smokers quit.

The only sensible interpretation of California’s ballot initiative is a highly cynical one: California wants its tobacco tax to be a lucrative source of revenue, but economics gets in the way. Policymakers are therefore willing to trap smokers into their bad habits by instituting similar taxes on safer alternatives to tobacco such as e-cigarettes. . .

This is irresponsible. . .

California hardly needs the money—it ran a $4.9 billion surplus in the 2015 fiscal year, and Governor Jerry Brown signed a $167 billion budget into law earlier this year without making any cuts. The long term is a different story—the state has hefty pension liabilities that appear to grow by the day—but a revenue source as unreliable as tobacco taxes would hardly put a dent in that problem.

Poor tax policy is not unique to California. . . But in three out of four states, at least, the voters appear to be smarter than the politicians.

Preston Cooper is a fellow at the Manhattan Institute

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Gluttony thrives in Government Taxation Programs.

It Disappears with Appropriate understanding of the Basic Laws of Economics.

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