Following a pattern of previous state wide ballot initiatives, California voters once again go to the polls this week being asked to consider a seemingly no-lose proposition, one that would simultaneously provide better schools—at least, according to the state’s school boards association—and eliminate a public health nuisance—this, according to several of the state’s healthcare advocacy groups.
That many of California’s healthcare, child care and educational interests are supporting Proposition 10 is not hard to understand, as these groups have the most to gain by its passage. Through a multi-million dollar tax increase, the proposition would create thousands of new politically appointed positions in all of these fields, administered by a new statewide commission and 58 separate county commissions.
What is considerably harder to understand is why anyone believes a tobacco tax is an appropriate way to fund early childhood development programs, or why smokers are presumed to be the only residents with a responsibility for these programs’ success or failure.
Prop. 10’s proponents have argued the initiative would fund a host of children’s programs, ranging from immunizations to nutrition services to drug abuse prevention. But if one believes these programs provide valuable services to vulnerable children, why choose, as a revenue source, funding that is essentially unstable, predicted to decline on an annual basis, and designed to phase itself out of existence? If, as supporters claim, these early childhood programs provide “our youngest children the healthy foundation they need to succeed,” what will happen to that success once the funding dries up? Advocates might argue that revenues lost from the sale of tobacco products would be offset by the public health gains realized from a smoke-free society. And while it might be nice if this were true, unfortunately, this view is ignorant of both the true costs of smoking and the realities of underground economies created by prohibitive government taxation.
In reality, and in stark contrast to the pro-“sin tax” rhetoric, it is not necessarily true that a significant number of smokers will decide to quit as a result of the tax increase, but it is invariably true that a greater percentage of them will be importing cigarettes from out-of-state sources or purchasing them on the burgeoning black market that inevitably accompanies both selective taxation and prohibition. A 1993 article in the Canadian new magazine MacLean’s reported that roughly half of all cigarettes in Quebec were sold in illegal black markets to avoid paying that province’s 60 percent tobacco tax.
Thus, a commensurate drop in either smoking or smoking-related health care costs would not accompany much of the lost cigarette tax revenue. Ironically, funding for Prop. 10’s programs, as well as those tax dollars earmarked for breast cancer research and even anti-smoking programs under Prop. 99, will all be subject to serious losses in revenue, with no real guarantee that actual smoking rates will decline accordingly.
But even among those who do actually quit, and even after taking public health costs into consideration, the effect would still be a substantial net loss in revenue, as smokers already more than pay their own way through existing excise taxes.
A 1991 study commissioned by the Rand Corporation determined the net external cost of smoking to be 33 cents per pack, while state tobacco excise taxes currently amount to 37 cents per pack—which would be raised to 87 cents under Prop. 10—and federal excise taxes draw another 24 cents per pack.
Thus, not only are California’s smokers already subsidizing public programs at roughly twice the rate their behavior allegedly “costs” the economy, but the burden of these tax programs invariably falls greatest on the state’s poorest residents and taxpayers, who devote a disproportionate percentage of their income to smoking, as well as other “sin taxes,” like alcohol, gasoline, certain foods, and even such seemingly innocuous items as soft drinks, fishing gear, margarine, airline tickets, and telephone calls.
In the Independent Institute’s book, Taxing Choice: The Predatory Politics of Fiscal Discrimination, released earlier this year, a host of the nation’s most-respected economists and public policy experts look at the largely unsuccessful record of these forms of punitive, selective taxation, which has often hindered economic progress and failed to deliver the promised social benefits.
Examining the history of selective taxation, the book’s authors demonstrate how excise taxes run counter to the prevailing sense throughout the nation’s history that all taxes should be general, and also show some of the adverse economic consequences of seeking to control personal choices through taxation, up to and including the ultimate tax society can levy—prohibition.
As the debate over tax reform and equitable taxation grows, we encourage policy leaders and the public at-large to examine the possible damaging effects of discriminatory taxation. For this, we believe our book, Taxing Choice, is an excellent place to start.
