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USA Today Wrong on the Cigarette Tax

From Joshua Culling on Friday, March 26, 2010 3:07 PM
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USA Today, best used as a floormat outside of hotel rooms nationwide, ran an article in today's paper with a seriously misleading headline: Cigarette taxes are gold rush for states. The problem is, they don't mention a single specific revenue estimate in the entire piece. There's no disputing that, for example, Utah Gov. Gary Herbert is currently considering allowing a $1 per pack cigarette tax increase to become law this month. What is up for debate is the amount of revenue the state will actually receive from such a tax increase. Recent history shows that revenue projections are often wildly optimistic, and that states relying on higher tobacco taxes to balance their budgets are pursuing a pipe dream (PUN!).

According to ATR's 2009 State Tax Trends, only 29 percent of the cigarette tax increases over the past decade actually met state revenue projections. The logic is intuitive: When you increase the price of a good, consumers purchase less of it. The real world evidence is plentiful. In 2007 New Jersey raised its cigarette tax by 17.5 cents per pack in an attempt to raise revenue. They predicted the tax would raise an additional $30 million. It actually came up $52 million short - a net loss of $22 million. At least they learned their lesson, right? Wrong. The Philadelphia Inquirer recently floated a $1 per pack increase to help balance the state budget. We try our best to take it easy on poor New Jersey, but they are so eminently mockable.

A couple hundred miles south, Washington, D.C. experienced the same predictable phenomenon. After last year's 50 cent per pack cigarette tax increase, the city saw a net revenue drop of $7.6 million. DC's Chief Financial Officer noted in a letter to Mayor Adrian Fenty that "future increases in the tax rate will likely lead to less revenue." So much for USA Today's mythical goldmine. This directly contradicts a recent report put out by the Campaign for Tobacco-Free Kids which argues that state tobacco tax increases result in automatic windfalls for state governments.

So what's a tax hiker to do when their credibility on issues of economics is destroyed? Make up things about public health. Organizations like CTFK argue that it is a net positive when revenue declines after a tax increase, because it proves that people are quitting smoking due to prohibitive pricing. Aside from the fact that they are expressly advocating for the elimination of retail jobs, this assertion is incorrect.

According to the Center for Disease Control as cited in the USA Today piece, every 10 percent increase in the price of a pack of cigarettes leads to a 3 to 4 percent drop in cigarette consumption. It is important to note that this number cites only tax-paid sales. In other words, when Ohio raises its cigarette tax by 10 percent, consumption of cigarettes sold legally in Ohio declines 3-to-4 percent. This means some smokers will buy cigarettes smuggled illegally from lower-tax Kentucky or sold over the Internet. This has been a significant problem in Michigan, New Jersey, and California. It also means that some smokers are crossing the border to stock up and save. It's not hard to envision a scenario in which a low-income smoker in Cincinnati drives across the Ohio River to save $6.50 on a carton of cigarettes. High taxes don't discourage smoking overall - only the purchase of overtaxed products high tax jurisdictions.

So much for the "gold mine" that is cigarette taxation at the state level. Policymakers considering such tax increases in South Carolina, Washington, Kansas, and New York would be wise to find an economically sound, fiscally sustainable way to balance their budgets. And the Campaign for Tobacco Free Kids might take a word of advice from my colleague Patrick Gleason on how to help the children: cut tobacco taxes.

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Comments

This is the cigarette tax blog post to end all blog posts. What a great way to sum up everything that ATR has posted concerning the sham that is the Tobacco Tax
>> Jason Duke Friday, March 26, 2010 3:33 PM Report Comment

...but what about all of the funding for schools, health care, and highways that comes from cigarette taxes!?
>> Tobacco Free Kids Friday, March 26, 2010 4:04 PM Report Comment

That's just it. Funding these things via a declining revenue source is just about the dumbest idea liberals have had to date.
>> Joshua Culling Friday, March 26, 2010 4:17 PM Report Comment

Tobacco Free Kids = PWNED
>> George Hutchens Friday, March 26, 2010 5:26 PM Report Comment

Additional point for Josh's great article: Tobacco taxes are (mostly) meant to discourage smoking due to the heavy burden it puts on health care costs. Raising taxes (especially if it was $30/pack for cigs!) to the level of stopping smokers would push more smokers to the black market, as Josh says, like marijuana. If we supposed smoking actually does stop and spending isn't the problem (as many Dems think) the problem then is where do we get the billions upon billions of dollars in revenue to offset these losses? Boom roasted.
>> bgall Friday, March 26, 2010 6:25 PM Report Comment

Truth. And speaking further to health care costs, the liberal argument for forced smoking cessation in the name of tamping down health care costs is inaccurate. Smokers actually impose a lesser economic burden on society than non-smokers. The primary reason, to be blunt, is that they die sooner than non-smokers. But they also pay more for what they get back in terms of health care relative to non-smokers, because of what they are forced to pay in excise taxes. Link: http://legacy.library.ucsf.edu/tid/hkp22e00/pdf
>> Joshua Culling Friday, March 26, 2010 7:24 PM Report Comment

Someone needs to look into Tobacco-Free Kids' funding sources. The Robert Wood Joohnson Foundation admittedly CREATED and funded them with $84,000,000 just to start them up. RWJF was created by the founder of Johnson & Johnson. RWJF owns 42,343,391 shares of J&J stock. J&J has the market cornered on over-the-counter nicotine REPLACEMENT. RWJF paid $99,000,000 to the ACS, ALA, AHA in "grants" for tobacco control smoking bans.
>> InvestigateNonProfits Friday, March 26, 2010 11:22 PM Report Comment

The entire movement is geared towards pushing the big pHARMa's nicotine REPLACEMENT. Heck, the ACS got a nice financial deal for putting their logo on these products. It's all about the money. What they DON'T tell you is the patches have a 98.4% FAILURE rate for quitting long term, the gum is more addictive than cigarettes, not to mention the horrid health side effects (just read what users say: http://www.askapatient.com/viewrating.asp?drug=18612&name=NICORETTE&page=10)
>> InvestigateNonProfits Friday, March 26, 2010 11:32 PM Report Comment

It's time someone investigated this sham. It worked, they demonized smokers and now they're using the same footprint for obesity. BTW, RWJF has given $500,000,000 in obesity "grants". Their CEO has been to the White House more than Secretary Clinton. Who's pushing for a tax on pop with sugar? RWJF. Who owns SPLENDA? J&J. Read this article and tell me if you don't see the parallel. http://www.bloomberg.com/apps/news?pid=20601103&sid=a_WgLIPgVGqc Kickbacks, grants...hmmm Looks the same to me.
>> InvestigateNonProfits Friday, March 26, 2010 11:39 PM Report Comment

Great article. I still think this is America & people have a right to be free to choose to smoke or not smoke. I don't like it, but that is what is great about America, because they do things I don't like, but I will not force my beliefs on them nor they force their life style on me.
>> SilverMoon Sunday, March 28, 2010 12:54 PM Report Comment

My personal belief is that behavior that harms others should be limited. Even as a bleeding heart libertarian i would support a county by county vote on smoking policies. Make all public spaces smoke-free, but stop taxing smokers. Also we need to pull their health care away. This is regressive, but i'm a firm believe smoking is a choice. Poverty does not mean you have to be a smoker.
>> BleedingHeart Sunday, March 28, 2010 8:49 PM Report Comment

To BleedingHeart- as a "bleeding heart libertarian", do you support property rights? It's one of the founding principals of being a libertarian. What about those of us who own a bar that's being financially ruined by our smoking ban? Our business isn't a "public" place. The "public" is not responsible for paying our bills. As a BleedingHeart Libertarian, shouldn't you be for the posting of signs that allow others to make choices while we retain our property rights?
>> InvestigateNonProfits Monday, March 29, 2010 7:38 AM Report Comment

Property rights are not absolute. And businesses aren't public places, agreed.
>> BleedingHeart Monday, March 29, 2010 8:59 AM Report Comment

Taxing cigarettes does help lower healthcare costs and also saves lives by decreasing smoking. Should this really even me a tab here? I mean, are people in support of RJ Reynolds and other companies? Hmmm....is it coincidental that ATR is a partially funded by big tobacco?
>> Smokingkills Friday, April 2, 2010 1:19 PM Report Comment

Big tobacco, wow Smokingkills you kill me. The state's cut is more than big tobacco whose profits and business model is protected by every state from us thanks to the master settlement act. So the state skims a big chunk off the top at the point of sale while weeping about the dangers of smoking as it carefully ratchets up the tax in order to boil the frog in the pot and get every single dollar it can from people who haven't got any more to give. In WA, at the stroke of midnight, the sobs will be deafening as the poor state demands $1 more increasing the take right at the register to $3. 50% tax. That's really going to make the crocodile tears flow. Confiscatory taxation: the American dream? No. These people can go straight to hell.
>> Joe Kamel Friday, April 30, 2010 4:31 PM Report Comment

For what I pay for a pack of cigarettes, I should be able to smoke anywhere I want. After income tax, sales tax, gas tax, property tax, school tax and the list goes on. If I can buy a black market carton of smokes for half price, I will buy it. Enough already!
>> Bill Thursday, May 6, 2010 12:17 AM Report Comment

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