Low Income Americans Shouldn’t be the Butt of Big Government’s Cruel Joke

Always popular because of their supposed benefits to public health, cigarette taxes are so high that a recent Congressional Research Service study demonstrated that tax revenue from tobacco exceeds the cost of all smoking-related health care. Yet those who view government as a growth industry keep coming back to tobacco taxes because the revenue helps to finance their vision of a larger and more intrusive state government. Across the nation, state legislatures are pursuing tobacco taxes to raise the funds necessary to pay for the explosive growth of government.

Already this year Maryland, Nebraska, New York and Utah have enacted higher taxes and more than a dozen other states, including South Carolina, Tennessee, and Kansas are poised to take taxes even higher.

Recently Dr. Roland Sturm, an economist for Rand Corp., revealed that cigarette taxes would actually be less beneficial to public health than Banana Crème Pie taxes. According to Sturm’s study, obese patients, on average, spend 36 percent more on medical care and 77 percent more on prescription drugs than a person of average weight. By contrast, a study from Health Affairs, a respected medical journal, calculated that a smoker spends only 21 percent more on care and 28 percent more on drugs than a non-smoker.

Of course taxes on fatty foods are not even being considered. But that’s because those in favor of increased taxes are not all that concerned about public health. They don’t care about ending teen smoking, or lowering the rate of cancer or heart disease among Americans. They simply want to find a way to pay for the 50 percent increase in state budgets over the past decade, and tobacco is low hanging fruit. Rather than trim government spending and risk upsetting the organized and vocal left, lawmakers have targeted minorities and the middle class with sizable new tax increases.

Legislators will pretend that the money will go towards education or transportation or whatever other expenditure voters favor, but the money would just feed government, as it always does. When the economy was booming, tax revenue grew at an unprecedented rate. This allowed state legislators to grow the size of the state government and keep the budget in balance without raising tax rates. Once the economy slowed, the state’s tax revenue turned out to be far less than estimated.

Good economic times typically require less public spending because the Medicaid and unemployment rolls decrease. Most of the past decade’s spending spree had less to do with public priorities than it did with pork-barrel politics: legislators used the revenue growth of the economic boom to fund pet projects and constituencies to win reelection. The flood of new revenue was too tempting to resist; instead of cutting taxes, the government created new programs that would not have even been considered if tax revenues didn’t grow so fast.

But these programs have created dependent constituencies who react violently to any attempt to reduce or eliminate their public support. As a result, politicians fearful of voter backlash have become as addicted to cigarette taxes as smokers are to their unhealthy indulgence.

This political dependence has led to an annual $13 billion transfer from the poorest Americans – disproportionately minorities – to government coffers. This figure could rise dramatically if the 23 states currently considering new cigarette taxes get their way. Of course, given the role cigarette taxes play in reducing smoking – which is the ostensible reason cigarette taxes are proposed in the first place – this new revenue may never materialize. Whatever one thinks of tobacco taxes, the conventional argument for them suffers from an obvious defect: Advocates claim that the tax will provide dramatic increases in revenues and reductions in smoking at the same time. But if the tax succeeds in its public health mission, it will fail to close the budget deficit and vice versa.

From a political perspective, it is easy to see why cigarette taxes are so popular. Shifting the cost of special interest giveaways onto low-income workers and minorities is far easier that determining what state representative’s favorite program should be cut. But this is the meaning of responsible budgeting. Just as American families are forced to make sacrifices and difficult choices when economic times are tough, so too should state governments.

To increase tobacco taxes would reward reckless spending and encourage corruption. Just as overly optimistic growth projections led to today’s state budget deficits, so too will overly optimistic projections about cigarette tax revenues cause the deficits of tomorrow.

But as long as defenders of big government can increase taxes on disfavored activities and products, they can avoid addressing the real problems and continue to buy votes with money extorted from private citizens. The cigarette tax canard has worked in the past, but for those concerned about the drain of state government on the economy, it must not be allowed to work this time.