If you’re a politician, it must seem irresistible. When the prairie fire of debt (to quote a certain presidential candidate) threatens to consume everything in sight and the budget seems irredeemable, and when tax hikes are not-only unpopular, they could harm economic recovery, why not tax bad behavior?
No one likes people with bad habits anyway, right? And if you have a bad habit, you probably feel a little guilty and don’t mind paying, right? Adding a little more to a pack of cigarettes or a bottle of whiskey or, heaven forbid (but it’s probably coming), a large soft drink won’t hurt anyone. In fact, it might help some of them. If a vice becomes too expensive, you will give it up, right?
Well, that kind of talk is more effective at starting fights among policy wonks than insulting their mothers’ credit ratings. The Tax Foundation issued a report this week that, among other things, cites evidence that higher cigarette taxes leads to a lot of smuggling across state lines. On the other side, meanwhile, the Associated Press stated flatly in a news article this week that, “Tobacco taxes have been proven to reduce smoking.”
It now appears that Californians have narrowly rejected a referendum that would have increased cigarette taxes there. That goes along with the Tax Foundation’s contention that the tendency to impose “sin” taxes is on the wave, which it sees that as a good thing.
“Such tax policies are problematic because they distort economic decision-making, invite retaliation from other states, and ultimately harm economic activity and commerce. Shifting tax burdens away from residents also artificially lowers the cost of government to them. The more non-residents pay, the lower the cost of government to residents, which can lead to demands for even more government services, far more than they are willing to pay for. Additionally, many of these revenue sources are volatile, and increasing state reliance on them can cause budget problems down the line,” the non-partisan tax-research group said in a report this week.
In addition, the taxes are regressive, the report said. Actually, that could be a good thing. With the bottom 50 percent of so of American earners not paying any federal income tax, it’s nice to know they pay something. (I’m kidding, I’m kidding.)
There is, as well, the problem of trying to gain revenue by taxing a behavior you hope disappears. If government comes to rely on income from cigarette taxes, won’t it have an incentive to keep people smoking?
Waning or not, the trend isn’t completely done yet. The Illinois Legislature just raised that state’s cigarette tax from 98 cents to $1.98. Some Illinoisans say they will simply drive to Missouri, where the state tax is only 17 cents a pack, dead last in the nation. Not to be outdone, a movement is underway in Missouri to put a $1 tax hike on the ballot and, presumably, end that form of economic opportunism.
Arguments and trends aside, smoking is a filthy habit with such alarming health consequences it probably should be classified as a controlled substance. It’s hard to ignore the balancing act between concerns about public health and the temptation to solve budget problems with revenue from a questionable source. I supported Utah’s decision to raise its cigarette tax to $1.70 two years ago, but only because I was convinced young people would find the price not worth the need to “experiment” with something science has firmly established as deadly. A kid isn’t likely to drive all the way from Salt Lake City to Wyoming to save $1.10 a pack.
But sin taxes aren’t good revenue sources, and they shouldn’t take the place of tough decision-making by politicians.