Two lawsuits have been filed challenging the governor’s vetoes of nearly $500-million in spending when he signed the budget. If either lawsuit succeeds, where will the replacement money come from to keep the budget whole (at least on paper)? Even though the lawsuits are recently filed, and the governor’s lawyers say they will fail, legislators and staff are already at work searching for dollars.
Legislators, who argue the vetoes hurt the poor, are focusing on a regressive tax that studies show fall mostly on the poor – a tobacco tax. In fact, the argument that the poor suffer most from the tobacco tax goes back to the beginning of the country. The future president, James Madison, led the opposition to a general tobacco tax as reported in the Annals of Congress on May 2, 1794:
As to the subject before the House, it was proper to choose taxes the least unequal. Tobacco excise was a burden the most unequal. It fell upon the poor, upon the sailors, day-laborers, and other people of these classes, while the rich will often escape it.
It seems certain that such a tax will not bring in projected revenue. As Dan Walters points out in his column, according to the Board of Equalization, tripling the cigarette tax will barely double the revenue because of the decline in smoking and other factors.
On top of that, as already noted previously in this space, there would likely be other negative fiscal implications to the state because a number of small businesses heavily rely on cigarette sales to make a profit. The National Association of Convenience Stores notes that cigarettes are the top selling item in the stores (exclusive of gasoline.)
Still, some legislators are determined to push ahead on the cigarette tax front. Republicans will undoubtedly deny Democrats the two-thirds vote required to raise the tax, so Democrats may explore turning the cigarette tax into a fee and pass it with a simple majority vote.
There is a sense of desperation in this strategy. The tax on tobacco has been around for more than half-a-century. Suddenly, declaring it a fee and linking it to specific medical costs will be a hard sell to any court when the majority vote is challenged, as it certainly would be.
Of course, even a majority vote fee needs the governor’s signature. Governor Schwarzenegger said he would not support more taxes. One caution is to watch if a tobacco "fee" comes through as part of a package of proposals to the governor’s liking.
If the cigarette tax or fee fails, an effort to pass an oil severance tax may be pursued, but faces similar hurdles as the tobacco tax.
So what then?
There are variations on the "smoking" tax and "oil" tax that would find support even from those who would pay the tax: Offshore oil drilling, which failed in the most recent budget deal, and a marijuana tax, which already has been proposed in bill form.
Is it possible these two issues that were once considered too hot to handle may find acceptance by revenue strapped legislators?
We may be a court decision away from finding out.