Mississippi: Regressive is Regressive is Regressive

The Northeast Mississippi Daily Journal recently published an editorial on Governor Barbour’s special tax study commission’s recommendations. The editorial board supports the proposal to raise cigarette taxes by 32 cents, but argues for a $1 overall increase in the per-pack tax. The editorial also calls for grocery tax relief, citing the regressive nature of sales taxes. Unfortunately, cigarette taxes also place a disproportionate burden on the poor.

By swapping out the grocery tax for an increase cigarette tax, the state does not reduce the tax burden on low to middle income earners. In fact, utilizing higher cigarette taxes in lieu of a grocery tax may harm the poor. Food stamps allow for tax-free purchases of necessary grocery items, but not cigarettes. Those who qualify for the food stamp program (426,000 in Mississippi) would not gain from a grocery tax exemption, and pay higher cigarette taxes.

Taxing smokers with the intent of reducing consumption violates the sound tax principle of neutrality. Smokers, who have a rather inelastic demand for cigarettes, will find a way to obtain cigarettes whether legal or otherwise. Cigarette taxes provide incentive for smuggling and black market activities. This may sound like something from an old gangster movie, but it happens across the United States as noted here, here, and here.

Politicians often use cigarette taxes as an easy revenue source. The lack of political support for smoking allows for a “guilt free” tax increase aimed at correcting for the negative externalities associated with smoking. Many studies suggest that current federal and state taxes overcompensate for the social costs of smoking.

Swapping one regressive tax for another will not improve the overall well-being of Mississippi. Changes in Mississippi tax policy should focus on the issues outlined here and here.