Raising Cigarette Taxes Just to Raise Revenue

December 20, 2007

It has been a common theme recently for elected officials to go after cigarettes for a tax hike to pay for some spending program that is supposed to provide general public benefits. What is the justification of this type of policy from the perspective of sound public finance? Unless one wants to argue for an across-the-board switch to Ramsey Rule taxation, there is none. It’s pure democratic politics: use the coercive power of the state to take from an unpopular minority to finance a majority’s wishes.

The latest two examples come from California and South Carolina. Gov. Schwarzenegger (yes, the same man who used to loathe socialist policies in Free to Choose videos) wants to use the revenue to pay for universal healthcare in California. Gov. Sanford wants to raise the South Carolina cigarette tax to pay for a flat tax in his state.

Neither has justified higher cigarette taxes on the grounds of empirical evidence on their negative externalities. They just want the revenue. It’s kind of scary that in a supposedly free country a politician with the political support of a majority could raise taxes on an arbitrarily selected minority to finance a program that benefits the majority.

Our recommended holiday reading for these politicians: Federalist Paper No. 10 by James Madison
(Caution: May contain words not used often in everyday readings or talk such as “liberty.”)

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