A poll was distributed yesterday that indicated voters would support a tax on cigarettes. The American Lung Association, American Cancer Society and the American Heart Association, three organizations that want to cut down on the number of smokers, commissioned the poll. So, it’s hard to understand the poll’s conclusion: “At a time when the state of California faces an unprecedented budget crisis, a tobacco tax increase receives overwhelming public support as part of a potential solution.”
A tax on cigarettes is intended to partially solve the budget crisis? Is that the goal of these reputable organizations? Using a tax on cigarettes to help solve the budget crisis seems highly unlikely, since a cigarette tax is a notoriously unreliable source of revenue. The higher taxes often cause smokers to search out ways to avoid the heavy tax. Purchasing them over the Internet, crossing state lines to acquire smokes, or even getting smuggled cigarettes.
California experienced what a Tax Foundation report called “Tax Induced Crimes” brought on by a previous increase in the cigarette tax. The reason, the report declares, is simple: “Cigarette taxes create a disparity between the cost of bringing a pack of cigarettes to market and the price at which it is legally sold. When this gap is small, as used to be the case in California, the incentives to evade the tax are also small. However, when the tax rises, the incentives to evade the tax can overwhelm tax enforcement.”
The examples of smuggling and theft included in the report will undoubtedly be repeated if California once again jacks up the cigarette tax.
Already news reports are suggesting that the recent federal cigarette tax is cutting down on sales. The headline in the Phoenix Business Journal over a story on the federal cigarette tax declared: “Tobacco Tax Increase Scorching Sales, Shops.”
So if the organizations that supported the survey want to stamp out smoking and the tax itself is not a good method for long term general fund revenue, what’s going on here?
While the sponsoring organizations may want to reduce smoking by making it more costly, the broader agenda for spending interests is to Divide and Conquer.
Focus a tax raising campaign on one industry so as to reduce opposition. Once taxes are raised on that industry, others would become targets. The American Federation of State, County and Municipal Employees (AFSCME) union released a smorgasbord of 31 possible taxes to choose from. Tax and spenders could go on for some time attempting to raise taxes in a piecemeal fashion.
Since Californians have strongly expressed resistance to tax increases, the way to get by the opposition is to pick one industry to tax while leaving the others unscathed — temporarily. Instead of raising a tax on all business or a number of businesses, the one that is targeted might not be able to hold off the tax increase pressure.
Cigarette taxes make an ideal first target. There are more non-smokers who might simply agree to a tax on cigarettes in hopes of dulling the taxman’s interest in coming after them. But, once the tax returns on a product like cigarettes diminish and cannot sustain general fund spending, the spending interests will seek more tax increases. They pick another target and ask taxpayers to raise taxes on this or that industry to substitute for the declining revenue.
The way to discourage this Divide and Conquer Tax Strategy is for the business community to stand united against further tax increase proposals.