April Fools! Thank You For Smoking (For The Kids) Day comes early

posted at 6:05 pm on March 13, 2009 by Ed Morrissey
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Smokers around the country expected cigarette prices to rise on April 1st, when the new federal taxes to fund the S-CHIP program start getting assessed.  They got a rude shock this week, when tobacco companies decided to hike prices ahead of time to stop consumers from hoarding in the last week of the month.  It may not be the last time, either, as states around the country look for revenue from so-called “sin taxes”:

Smokers who were preparing to take a hit to their wallets next month are learning to their surprise that the era of nearly $5-per-pack cigarettes arrived early.

On April 1, the federal government boosts its tax on cigarettes to help pay for a children’s health care program. But many tobacco companies, in anticipation of the extra 62-cent tax, decided to implement price hikes now — about three weeks early.

Tobacco giant Philip Morris, maker of popular brands Marlboro, Virginia Slims and Parliament, upped its list price 71 cents per pack on Monday. R.J. Reynolds, maker of Kool, Camel and several discount brands, plans to raise prices between 41 and 78 cents beginning Monday.

This, in turn, has driven the retail price of most packs of cigarettes up about $1 at many local stores.

The cigarette tax is a great example of Big Government hypocrisy on Big Tobacco.  They claim to want to penalize smokers for the health-care costs they create through their nicotine addiction, but the funds will go primarily to health-care costs to non-smokers: children.  In reality, they needed a big new revenue stream to pay for another giveaway, and decided to get it from smokers.

Nor is that the only hypocrisy.  Most nanny-staters claim that they’re acting in benefit of smokers by increasing taxes, as that will provide further incentive for them to quit using the product.  However, if people actually did stop smoking, it would bankrupt government, which needs a large smoking tax base to provide billions in cash on state and federal levels.  If we propose the reverse — if we outlawed tobacco rather than taxed it — would Congress eliminate S-CHIP?  Of course not.  They’d just look for something else to tax.

Michael Flynn wrote about the same issue at Reason a month ago:

Desperate for an infusion of cash, politicians have turned to their oldest stand-by; cigarette taxes. Even after decades of steady increases in tobacco taxes, state lawmakers in at least a dozen states are looking to raise cigarette taxes.

Right now, government makes more off the sale of a pack of cigarettes than tobacco companies. In some states, two-thirds of the price of a pack already goes to government. This will get worse because Congress just hiked the federal cigarette tax 61 cents a pack to help pay for the expanded State Children’s Health Insurance Program.

Anti-drug advertisements by government agencies like to tell the public that those who buy illegal drugs fund gang warfare and street violence.  In a real way, those who smoke cigarettes fund Big Government.  Maybe we should have an advertisement for that to play on television; the Libertarian Party could use it for recruitment.

The same nanny-staters that usually also push for progressive tax policies, like the Obama insistence that he will only increase taxes for the top 5% of earners, ignore the very regressive effects of cigarette tax increases:

The overwhelming majority of cigarette taxes are paid by low-income households. In a recession, you’d think lawmakers would want to give these folks a break. But, lawmakers’ habits are hard to break even when it is clear that tax increases don’t raise any new revenue.

Cigarette taxes are also models of foolish static tax analyses, promising more revenue than they deliver, for this very reason:

In 2006, New Jersey raised its already high cigarette tax, thinking it would bring in an extra $30 million a year. It didn’t. Worse, it caused their actual collections to drop by more than $20 million. The tax increase threw the state’s budget off by $50 million, money that had to be made up by other taxpayers. This isn’t unique to the Garden State. Since 2003, there have been 57 cigarette tax increases across the country. In 37 (68 percent) of those cases revenues failed to meet projections.

Why?  Higher taxes depress sales.  In static analysis, no one accounts for the depressive effect of tax increases, which routinely means that tax increase revenue projections fail to match reality.  When the squeeze disproportionately hits people who have less disposable income, the greater the difference will be.

But planners have learned this lesson, right?  No.  Individual states have already begun planning cigarette tax increases in Illinois and in Florida, where a Republican has sponsored the increase.  That will lead legislatures to allocate spending based on the inflated projections of static analyses.  And when those revenues fall short — as they will with the S-CHIP tax as well — government won’t stop spending the money.  They’ll just look for more ways to take out of the taxpayers’ hides.

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