No California Love For Taxpayers With Latest Attempt At Tax Increases

The California State Legislature is moving a bill (SB 768) that will raise the tobacco tax in the state by $2, and the proposal is gaining momentum and could become law very soon. The bill was introduced by Senator Kevin de León (D-Los Angeles) last month, and while it comes under the heading of  “raises revenues for health programs”, the fact is this bill will hurt the California economy, hurt California businesses, hurt California consumers, and hurt California taxpayers.

The usual excuse for this type of tax increase is to generate some amount of increased revenue for a state funded program almost always related to health care, seeing as it is targeted directly at those who smoke. The state of California has already tried this type of scheme before to “raise revenue” and the fact of the matter is this is not the responsible way to go about it, especially when you consider that the revenue raised from the cigarette tax in California has decreased.

Unfortunately, revenue expectations from tobacco taxes tend to be Fool’s Gold. The Minnesota State News pointed out that “Since 2003 there have been 57 cigarette tax increases across the nation and 68% of them have failed to meet projected revenues. In 2006, New Jersey raised cigarette taxes with the hope of pulling in $30 million in extra revenue each year.  Not only did the tax hike fail to bring in extra revenue, but the state actually collected $20 million less in cigarette sales.”

Furthermore, many programs that are intended to be funded by cigarette taxes experience a “funding gap” due to the decreases, which presents yet another problem for a state that is desperately overstretched in the area of budgetary commitments. There seems to be an alarming trend in many states that when it comes to looking for ways to add money to the state’s budget, instead of cutting spending in programs rife with waste and prime for reform the politicians choose to go after the entrepreneurs, consumers, and taxpayers who neither want nor need many of these wasteful programs.

The state of California is running into a brick wall in terms of their debt crisis, and the picture could not be more frightening. According to the California Public Policy Center, the state and local governments are in debt nearly $700 billion dollars and that figure could rise to more than a trillion depending on the calculation of pension liabilities. The figures compiled take into account the official debt ($132.6 billion) but add in official data on a slew of programs including those in education, development, federal dollars owed, health care, etc. How Sacramento politicians can look at this “wall of debt” and decide the way forward is to raise taxes on tobacco really just doesn’t add up when you take a closer look at the fiscal nightmare for the state and the realities of how ineffective a tobacco tax increase really is at raising revenues.

One of the bigger problems with this legislation is that those most adversely impacted by this type of tax increase will be low-income Californians, smoking is more prevalent among low-income populations with an annual income ranging from $10,000 to $20,000; it is these taxpayers who bear the burden of tobacco tax increases. Why would elected officials try to solve their budget math on the backs of the workers who make the least amount of annual income? What’s more infuriating about these types of ‘targeted’ tax increases is that it harms small businesses and could result in smuggling, which would not only defeat the purpose of tax increase but also take away money from both those businesses and the state that they otherwise would have received without the proposed legislation. The issue of smuggling came up last year when a ballot initiative sought to raise the tax by $1. There is a real redundancy and almost comical irony at play here where whatever the motives of these politicians are, the results end up causing far more harm to everyone involved regardless of the intentions and goals stated otherwise.

Last year, the Taxpayers Protection Alliance (TPA) worked hard to successfully defeat Prop 29 (read blog postings here and here), which proposed to increase the cost by $1.00 per pack.  The additional revenue was supposed to be used for cancer research, smoking reduction programs, and tobacco law enforcement.  California voters rejected Prop 29, California legislators should listen to the people.

TPA is adamantly opposed to SB 768, aimed at increasing tobacco taxes by $2, and we urge the California Senate to look into far more productive measures to solve their debt crisis. We hope that solutions that harm the taxpayers, preserve wasteful programs, and ensure continued long-term debt without any chance of reform will be fought every step of the way. There are responsible solutions to fix the fiscal disaster in California, but targeting low-income voters with a tax increase is certainly not the right way forward.