YES: Revenues don’t show up as promised and taxpayers pay the shortfall.
By John Nothdurft
After decades of increasing tobacco taxes at the federal, state and local levels, some states are beginning to buck this fiscally burdensome and irresponsible trend.
On March 17, the New Hampshire House of Representatives passed a bill that would cut the state’s cigarette tax by a dime, to $1.68 per pack. Two other states with high tobacco taxes — New Jersey and Rhode Island — also are considering proposals to reduce taxes on tobacco products to make their state’s tax rates more competitive.
This reversal in policy would be fiscally responsible and especially beneficial to low-income people.
Many economists have noted that many states’ cigarette taxes are so high that further tax increases will bring in less revenue than expected and actually may cause the states to lose revenue. After New Jersey raised its cigarette tax 17.5 cents, it experienced a net loss of $24 million in revenue over the next two years.
Similar results from other states show cigarette tax hikes do not fix budget “potholes” and instead create more long-term budget problems. Lower-income taxpayers are unduly affected by this regressive tax, and de facto “prohibition environments” have been created in some of the higher-tax areas, causing crimes such as smuggling.
Despite these problems, some states with relatively low tobacco taxes, such as California, Georgia and Idaho, are considering sacrificing their competitive advantage by raising these taxes. These tax hikes probably would increase revenue somewhat in the short term, but the revenues likely will be less than expected, and the revenue stream will dry up over time. That is why some states are thinking about reducing their tax rates.
As smoking rates continue to fall and more people purchase their smokes from less-taxed venues, a new shortfall in revenue is left for other taxpayers to pick up. These revenue gaps likely will leave taxpayers back on the hook for higher taxes to cover the excess spending that was propped up by tobacco taxes in the first place. According to a study by the National Taxpayers Union, “41 of 59 state tobacco tax increases between fiscal years 2001 and 2006 were followed by tax hikes in the two-year period following enactment.”
Instead of drawing a line on spending, far too many politicians have turned to “sin” taxes on tobacco, soda, alcohol and other targeted products to duct-tape their budgets. Even so-called fiscal conservatives often support regressive tax hikes on “sins” to fill budget holes, instead of tackling spending.
In many cases these taxes don’t even have a significant impact on the social or health problem their proponents claim they’ll help fix. Anti-smoking advocates often argue these taxes reduce the number of smokers, and to some extent that’s true, but most smokers merely avoid the tax, thereby hurting local businesses. The taxes just encourage people to buy tobacco products in the black market, online or across state lines.
States should be looking to create competitive tax advantages and preserve any advantages they already enjoy. It would be smart of New Hampshire, Rhode Island and New Jersey to buck the trend and begin lowering their tobacco taxes. And California, Georgia and Idaho would do well not to give up their tax advantage.
John Nothdurft is director of government relations for the Heartland Institute.
NO: The tobacco tax is the most powerful investment we can make in our health.
By Harry J. Heiman
Despite the fact that more than 70 percent of the citizens of Georgia and a large portion of the Legislature now support a dollar increase in the per pack tax on cigarettes, the legislative and state leadership apparently remain unmoved — more bound by political pledges of “no new taxes” than their duty of office which requires them to act in the best health interests of Georgia’s citizens.
Tobacco is the leading cause of preventable illness and death in the United States — more than obesity, poor diet, lack of physical activity. Smoking is responsible for 1 out of every 5 deaths. More than 440,000 people die each year from diseases due to smoking, including more than 10,000 Georgians. That’s more than 1,200 people each day nationally and more than one person each hour in Georgia.
Yet almost 1 in 5 people still smokes, including 1 in 5 high school students, most of whom will continue smoking into adulthood. Seventy percent of adult smokers began before age 18.
Physicians see patients and their families paying the price for tobacco-related illnesses every day. In our offices and hospitals all over the state it shows up as preventable cancers, heart disease, stroke and chronic lung disease. For the children of smokers it presents as low birth weight babies, increased asthma, respiratory infections and ear infections.
We all pay for it, not only emotionally and in lost lives, but in the shared health care costs. Nonsmokers subsidize the health care costs of smokers. We spend more than $2 billion a year in Georgia for tobacco-related illness. That includes more than $537 million in Medicaid alone. That doesn’t include the indirect costs due to missed work and reduced productivity estimated at more than $3 billion per year, according to researchers. Every taxpayer pays for the costs of tobacco-related illness.
The real tragedy is that there are proven policies that not only reduce smoking in adults, but reduce the number of young people that start smoking. And that’s important because one half of all smokers, especially those who start as teens, can expect to die from tobacco use.
Raising the price of cigarettes reduces cigarette use; it motivates adults to quit and it discourages children from starting. This is not a matter of opinion or an issue that is subject to debate, much to the disappointment of tobacco companies. Raising the price through increased taxes saves lives and saves money.
Raising our tobacco tax by $1 costs nothing and the return on investment is more than $350 million a year, not counting the savings in reduced health care costs and improved health for the people of our state.
I have heard the complaints of those opposed to raising the tax. They are concerned about Georgia smokers going to other states to buy cigarettes or buying them on the Internet. While an interesting concern, evidence from states where tobacco taxes have been increased have disproved the myths regarding cross-border sales or effects on convenience stores.
Tobacco has no redeeming qualities. It is a killer. It is the No. 1 cause of preventable death in Georgia. At a time when we are scrambling to find the dollars to fund critical needs and services, our state leaders need to put forth a policy that puts the health of our state first.
Dr. Harry J. Heiman is director of health policy for the Satcher Health Leadership Institute at the Morehouse School of Medicine and active in a coalition to raise the per pack tax on cigarettes by $1.