|
Monday, November 13, 2006
Cigarette Taxes: Regressive Yet Beneficial (Maybe)
In their latest edition of Tax Justice Digest, Citizens for Tax Justice rundown the various tax propositions which appeared around the country on state ballots. CTJ applauds the defeat of a host of dreadful TABOR proposals, estate tax repeals, and a smattering of other awful tax measures, but they also applaud the defeat of cigarette tax increases.
But, wait - don’t we want to discourage people from smoking? Now seems like a good time to discuss balancing competing objectives of a just tax code. In this case, the conflict is between degrading tax code progressivity and using the tax code to discourage harmful behavior (harmful not only to the individual who engages in the behavior, but also to those near him or her, and harmful to the economic prosperity of the jurisdiction).
CTJ articulates its stance on cigarette taxes in its Talking Taxes Policy Brief #1 as such:
[I]f tax hikes do cause smokers to quit, states will enjoy savings in health care costs as smokers’ health improves. Under these circumstances, cigarette taxes can be an appropriate social policy tool, despite the regressive impact of such a change. If a state is relying on the revenue from the tax to fund programs or supplement a state budget, however, cigarette taxes are a poor choice.
Do higher cigarette taxes discourage smoking? According to the conclusion of a study published in BMJ (formerly British Medical Journal), it does:
The use of a policy to steadily increase cigarette tax is likely to help achieve the government's targets for smoking and smoking related diseases.
But more importantly, teens are very sensitive to cigarette prices. This is especially important because most smokers start smoking before the age of 25, and those who do not smoke during adolescence are unlikely to become smokers. So, higher cigarette taxes are especially effective because they would prevent many citizens from ever becoming smokers.
Cigarette taxes are therefore appropriate because they do reduce smoking rates, but CTJ would still object to higher cigarette taxes if their revenues were a dedicated funding source for a specific program. The logic is that as cigarette prices increase, fewer people will smoke, so less revenue will be generated for the program. This will necessitate further increases in cigarette taxes to maintain funding levels for the program, increasing the regressitivity of the tax code.
What if cigarette taxes become so high that no one smokes and funding for the program drops completely evaporates? This would be a net positive outcome. But is this a realistic outcome? Cato Institute argues that higher cigarette taxes create a black market for cigarettes, so not only would smoking rates not decline, but the tax would result in a new criminal enterprise.
After this brief foray into the ups and downs of cigarette taxes, I remain solidly on the fence. Are we better off as a society with higher cigarette taxes?
Tell us what you think (select "Federal Budget" from the drop down menu).
Posted by Craig Jennings
|