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Raising Cigarette Taxes to Fund Veterans’ Benefits

2 min readBy: Gerald Prante

Tennessee is the latest state to raise the cigarette taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. as a general revenue source, largely because it is easy politically to pass tax hikes on a political minority. But they don’t want to stop at 42 cents. They need another 3 cents out of smokers to give money to veterans. From the Knoxville News Sentinel:

House Democrats, in a surprise move, acted Wednesday to give quick, late-session approval to another 3-cents-per-pack tax increase on cigarettes, with the revenue earmarked to benefit veterans.

The bill is sponsored by Rep. David Shepard, D-Dickson. It was brought to life by a Wednesday afternoon amendment in a House committee, then zipped through three committees without debate or opposition.

It could face a House floor vote today – just three days after approval of a 42-cents-per-pack cigarette-tax increase.

That bill awaits the signature of Gov. Phil Bredesen, who pushed for passage.

About $21 million of the money raised from the 42-cent increase will go to “agriculture enhancement grants,” $11 million to trauma centers and $5 million to smoking cessation programs.

The state is raising the price of cigarettes by 45 cents. Where does this 45 cents come from? Not from a calculation of the negative externalityAn externality, in economics terms, is a side effect or consequence of an activity that is not reflected in the cost of that activity, and not primarily borne by those directly involved in said activity. Externalities can be caused by either production or consumption of a good or service and can be positive or negative. of a pack of cigarettes, but rather it is the amount of revenue by which the governor and his fellow lawmakers want to increase government spending, mostly on education with very little funding for anti-smoking programs. (Some of it even goes to subsidize farmers.) Taxing cigarettes to fund education and veterans’ benefits makes about as much sense as taxing bicycles to finance police protection.

The tax on a pack of cigarettes should equal the negative externality imposed on society from cigarette consumption. If the politicians in Nashville want to get involved in paternalism, however, they should not stop with cigarettes. If paternalism over individual health is the goal, then maybe Coca-Cola, McDonalds, and Hershey will be the next to be taxed for health reasons. And Tennessee’s own Jack Daniels Distillery should face a very large tax.