Higher Cigarette Taxes in California?

July 1, 2015

California might be facing calls for a higher cigarette tax in the near future. This session, the state Senate had been considering SB-591, which would raise the tax to $2 per pack. Despite clearing committee, the bill never made it to the floor and was relegated to the Senate’s inactive file earlier this month. However, a ballot initiative to raise taxes might gain a spot on the 2016 ballot, as backers have pledged to spend $2 million to promote the tax increases. From the Sacramento Bee:

The money flowed from a coalition of groups that include SEIU California State Council – a union umbrella group whose members include thousands of health care workers – the California Medical Association, the California Dental Association, the American Cancer Society and groups promoting heart and lung health.

Their twin ballot initiatives would impose a $2-per-pack tax on cigarettes to fund health programs that include smoking prevention and Medi-Cal, California’s health insurance program for low-income residents.

The money is another move in an ongoing political fight over Medi-Cal reimbursement rates.

A similar coalition of medical and labor groups has pushed to have California increase how much it pays doctors and other providers, saying existing rates are making it hard to obtain health care. Some of the cigarette tax revenue would flow into a new fund that could be used to augment Medi-Cal provider rates.

At $0.87 per pack, California’s cigarette tax ranks in the middle of the pack nationally. But while raising cigarette taxes is being sold as a good way to improve funding for government programs, cigarette taxes are not a stable revenue source. Cigarette consumption is on the decline as smokers switch to alternative tobacco products like e-cigarettes or just quit altogether. Tying a spending program with continual budgeting needs to a revenue source that is getting smaller is not a sustainable budgeting practice, and California needs to be wary of unsustainable budget practices.

In addition, this plan would only exacerbate smuggling issues in the state. In 2013, about one in every three cigarettes consumed in California was smuggled in, according to the Mackinac Center for Public Policy. One of the main reasons for this is the state’s southern neighbor, Mexico, where cigarette prices are about a third lower.

While lawmakers and advocacy groups have noble goals in mind, higher cigarette taxes would hurt more than they help. Any tax hike would eventually result in lower revenues and an increasingly lucrative black market, neither of which would do the state any good.

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