Smoke and Mirrors on the Tobacco Tax Hike

March 10, 2010

Rep. Ron Stephens thinks Georgia can game the state's fiscal woes with a little sleight of hand, all at the expense of the state's poor smokers. First he would hike the cigarette tax, and then he would dangle that new tax revenue, $350 million, in front of Uncle Sam in an effort to "attract an estimated $1 billion dollars in new federal health care funds."

The beauty of such funds, Rep. Stephens tells us, is that after promising to spend the federal money on health care, a little budget chicanery is all that's needed to spend it on anything Georgia wants, including basic services like state patrol officers and prison guards.

The Stephens proposal sounds more like a case of Medicaid fraud than a sound fiscal plan.

The Savannah Republican defends his plan by falsely saying that the cost of smoking is a huge burden for nonsmokers. Over the last 15 years, dozens of peer-reviewed studies throughout the 1990s from economists such as Vanderbilt's Kip Viscusi and Willard Manning Jr. of the University of Chicago demonstrate conclusively that nearly all the costs of smoking—healthcare, higher insurance premiums, lower productivity at work—are borne by smokers themselves.

Over their lifetimes, smokers cost taxpayers only trivially more than nonsmokers—about 32 cents a pack, according to most studies, far less than the $1.38 per pack that Georgian smokers are already paying in federal and state cigarette taxes, not to mention the extra dollar a pack that Stephens wants to load on them. Smokers are already overpaying, and a cigarette tax hike would just make the situation more unfair.

But as usual, it's reelection, not fairness, that seems to be driving Rep. Stephens' plan. Last week he told Atlanta's WSB radio, "Once you see the polling data, and once you see that over 70% of the people will still vote for you if you vote for this tax increase, it's kind of a slam dunk, so to speak."

The average Georgian is probably a little more civic minded. General government services like police and the court system provide broad public benefits. Consequently, fairness demands that everyone should help pay for them. That's the problem with cigarette taxes and other product-specific taxes: only a small fraction of the public ends up footing a disproportionate share of the cost.

Now, if the state's smokers were all the richest people, then no one would hesitate to raise the tobacco tax. But the opposite is the case: the existing cigarette tax transfers money from the poor to the rich. What's a $2.38 tax each day to smokers? Well, it's $868 a year, and that is over 5 percent of a minimum wage earner's annual income. How would the average wine or liquor drinker feel if the legislature enacted a tax on those products that took away over 5 percent of their income?

The cigarette tax takes millions of dollars annually from low-income counties like Charlton, Atkinson, and Clinch where average incomes hover around the $20,000 range, and that money is spent in high-income counties like Fulton, Cobb and Douglas where average incomes are as much as two and a half times higher. Indeed, residents of Rep. Stephens' own district only get about 91 cents back in state services for every one dollar they send to Atlanta in cigarette taxes.

Governing a state requires that policymakers do more than attend the latest ribbon cutting ceremony. It sometimes requires that they make tough choices in order to enact prudent and equitable policies, especially during tough economic times.

Citizens should respect the pickle that the recession has put policymakers in and refrain from demanding quick fixes to complex problems. By the same token, those in high office have an obligation to offer their constituents something more than just the snake oil of unfair cigarette taxes.

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