Back to School for Many, Back to Tax Increase Proposals in California

Growth of government continues to be a problem not just at the federal level but also in many states around the country. Some of the worst growth in government is usually paid for through excise taxes on products like soda, tobacco, and alcohol. These taxes are harmful to the middle class because they never raise the projected revenue.  And, in the case of tobacco taxes, illicit activity increases when taxes are high.

Proposition 56 (Prop 56), a $2 per pack cigarette tax increase in California, will be on the ballot and could be a fiscal and legal nightmare for the state.  Proponents of Prop 56 claim the new tax will help public safety and raise revenues. In reality however, it is nothing more than a $1.4 billion tax increase meant to fund more government bureaucracy and provide a bailout to specific industries while subverting existing law in the state and neglecting the real problems that Californians face. 

The specific problems with the proposal include:

• The proposal will ignore (because it is written that way) the California Constitutional requirement to give at least 43 percent of the new tax to public schools;

• Nearly $150 million of the projected annual revenue will be purely for government expansion;

• The money raised from the tax increase will mostly go to insurance companies in California, nearly $1 billion, to treat patients they are already treating.

Aside from the glaring problems above, the usual problems will arise from tax increases like the ones that Prop 56 contains. First, the revenue projections never pan out.  The state is already facing a $400 billion debt problem, when the projections for this tax increase fall short, there is no indication where the revenue will come from to make up the shortfall.

Another concern is the problem of the illicit trade of cigarettes. Prop 56 would make California’s cigarette tax one of the ten highest of all 50 states and that will make California a prime target for smuggling, which will add to the loss of revenue previously mentioned as an all but likely problem.

The issue of illicit trade of cigarettes also presents another problem of public safety that goes beyond revenue. The death of Eric Garner in New York was directly attributable to the illicit trade of cigarettes.  Eric Garner died in July of 2014 after police had restrained him while he was being cited for selling cigarettes on the streets. New York’s high cigarette taxes (highest in the country at $4.35 per pack) encouraged the illicit sales that Mr. Garner was participating in.  It is clear that high tobacco taxes play a major role in fostering that kind of illegal activity.

This isn’t the first time the Golden State has tried to shortchange taxpayers with a similar proposal. Back in 2012, Proposition 29 (a $1.00 per pack increase on cigarette taxes) was put on the ballot and TPA worked to help stop the tax increase from passing. While the proposal failed, which was a great victory for taxpayers, there was no doubt that it would not be the end for those who wanted the tax increase. 

TPA strongly opposes Prop 56 because it will fund government bureaucracy and provide payouts that amount to nothing more than cronyism, all while stealing money from the children in California’s schools. Taxpayers in California need to stand up and tell their elected leaders, as they did in 2012, that tax increases like Prop 56 are unacceptable.