Recently, another round of calls started up to raise taxes to plug the yawning hole in the state budget. A powerful union even began running ads on television suggesting new levies. The tax-first-and-ask-questions-later crowd picked some vulnerable and tempting targets for new taxes: cigarettes, alcohol, card rooms and the like.
The rationale is compelling. The state could get money from undesirable activity and therefore would not penalize good behavior. And if the higher taxes cause people to stop smoking or drinking, well, that’s a social benefit to California. All good and simple, right?
Alas, not quite. Aside from the fact that such taxes disproportionately hurt the poor, such taxes also fall heaviest on small businesses. Many convenience stores, for example, depend on cigarettes and liquor for much of their sales and a bulk of their profits. Those shopkeepers have families to feed, too.
And it’s not a stretch at all in this Internet age to assume that if the taxes get too high, consumers will simply buy their alcohol and tobacco in low-cost states and countries and have them shipped in. If that happens in any abundance, the state may end up with less tax money, not more, and the little businesses that depend on liquor and cigarette sales will get hurt. They may even pay less taxes as a result.
Good and simple? The rationale may sound good, but the result is not so simple.