Ciagrette taxes and other so-called "sin" taxes have often been the quick-fix of choice for state and local governments. Governor Rell has proposed yet another hike in Connecticut's cigarette tax, from $1.51/pack to $2.25/pack. This will be the fourth time in as many years that cigarette taxes will have been raised.
The obvious? If cigarette prices keep rising, people will quit smoking cigarettes. Revenues will stop increasing at such a satisfying rate, and the quick-fix no longer works.
Here's some evidence:
Cigarette tax revenue has followed a similar pattern nationwide, said David Brunori, contributing editor of State Tax Notes, a tax analysis and publishing company in Arlington, Va. In 2002, states raised $8.6 billion in tobacco taxes, he said. That jumped to $11 billion the following year and slowed to $12 billion in 2004.
"Every economist knows this fact: Tobacco taxes and cigarette taxes are not a viable long-term source of revenue," he said. "Each year you have fewer smokers than the year before. The base is shrinking. You'll raise the rates, but there will be no more money to be raised. Politicians have a short-term outlook. They need revenue now." (Singer)
I've complained about "sin" taxes before. It seems unfair to me that people should be taxed for what the state sees as immoral behavior, which is really what is at the heart of the matter. If the state tried taxing a popular unnecessary and addictive substance, like coffee, the outcry would be instant and furious. However, smokers are an easy target. No one is going to defend smokers, who are seen as filthy nasty people who will eventually give everyone cancer.
Now it turns out that this particular "sin" tax won't even work over the long term. We can't keep flogging the cigarette tax forever, no matter how popular it is. Instead, the General Assembly should set its jaw and actually deal with the ongoing budget crisis in a substantive way instead of looking around for easy, popular, transient solutions.
Source:
Singer, Stephen. "Rell's budget challenge: Revenue gains fall as cigarette taxes rise". Associated Press 7 March 2005.
ELECTION ALERT: Naugatuck Democratic Mayoral primary today!!!
2 comments:
Hmm. I do see your points (and they're good ones) but I'm still leery of sin taxes as a general idea. The idea of using taxation to recover "public costs" seems slippery... and the costs are only "recovered" in the most roundabout of ways. If we had public health care, the situation would be clearer. However, private insurance premiums for smokers are much higher than those of nonsmokers, as they should be. How much of this public cost is already being recovered by insurers?
My major quibble with the state is that "sin" taxes are an easy solution that don't really solve our budget problems. It isn't sound financial planning, because the revenue is unpredictable.
"Perhaps "sin" tax is the wrong framing. These are taxes where the nominal cost of the good isn't as high as the societal cost, and so the taxation is merely serving to balance the market."
Well said, and I concede the theory.
Whether or not the General Assembly should continue to raise the tax as it has done is, perhaps, a separate issue. The original tax may serve to offset the societal cost, but the increases seem to be set arbitrarily to meet the needs of the budget. Is there a valid formula for calculating what the tax should be? Perhaps it could be indexed to keep pace with inflation and rising health costs.
I still think the General Assembly is using this particular tax as an easy out.
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