Washington and Alabama Repeating Mistaken Record of Costly Tax Increases on Tobacco

The more things change, the more they stay the same. This is an oft-repeated line, especially when it comes to elected officials and policy prescriptions. Over the years taxpayers have been subject to policies that have robbed their wallets, while doing little to address the real concerns of working families. This logic is especially true for Washington and Alabama considering that the Governors of those respective states have called for an increase in tobacco taxes.

Lavendrick Smith at The Olympian outlined details of the proposal from Washington Governor Jay Inslee (D):

Inslee has proposed a 95 percent excise tax on e-cigarettes and vaping products — the same tax rate now applied to conventional cigarettes. His plan also would add 50 cents to the cost of a pack of cigarettes in an effort to raise about $56 million in revenue. The House will have a hearing on the proposal next week.

The Washington State Senate has introduced legislation, Senate Bills 5729 and 5808, which would impose higher taxes on cigarettes and create new taxes on E-cigarettes. This would be a costly reality for taxpayers, while doing little to address the problems that Gov. Inslee is looking to fix. The increase would push the state’s tax to $3.53 per pack, making it the second highest only to New York’s $4.35 tax per pack.

It is unfathomable that Gov. Inslee would lean on old failed policies that will disproportionately harm the working class, and would in turn breaking pledges made when first running for the office he now holds. Multiple times he promised the citizens in the state of Washington that tax increases would not be a part of his agenda. He made the case on several occasions that tax increases would be the wrong solution:

• “Under my plan, it should not be necessary to address that issue because on my plan we’re not going to request additional taxes.”
  
  
• “I would veto anything that heads the wrong direction and the wrong direction is new taxes in the state of Washington.”
  
  
• “And I don’t believe that tax increases are the right, uh, route forward for our state.”

The appetite for tax increases is a bipartisan affair in a number of states, as Alabama’s Republican Governor Robert Bentley is eyeing a proposal that will more than double the tax on cigarettes. A budget shortfall is the problem, and Gov. Bentley seems to believe that raising taxes, including the cigarette tax, is a viable solution to filling the more than  $700 million hole the state is facing. Mike Carson with AL.com reports that:

The state tax on cigarettes is 42.5 cents per pack. Bentley proposed raising that to $1.25 per pack.

His proposal would increase taxes on other tobacco products proportionately. It would produce an estimated $205 million increase in revenue.

Cigarette tax revenues are declining, from $131 million in fiscal year 2010 to $117 million in fiscal year 2014.

After the increase, Alabama’s per pack tax would be higher than all but one neighboring state, according to “A Legislator’s Guide to Alabama’s Taxes,” published annually by the Legislative Fiscal Office.

There are some very important things that jump out from the Carson’s piece that show why increasing taxes on tobacco is misguided. The state projections on revenue are just that, there is no guarantee that revenues from tobacco taxes won’t continue to decline. In addition, if the tax increase passes, Alabama will have the highest tobacco taxes in that region of the country.  That dubious distinction will likely serve only to increase the illicit trade of tobacco.

The truth is that these types of tax increases are abject failures and the revenues envisioned becomes Fool’s Gold.  And, when the increased taxes don’t raise the projected revenue, elected officials will be tempted have to go after revenue (taxpayers) in other ways to make up that lost money. Increases on tobacco taxes also lead to higher black market activity in those states. Most importantly, the idea that increased taxes on tobacco decreases consumption is just wrong. Nick Zaiac of Watchdog.org makes the case against these types of tax increases by showing the failed history:

“This argument is misguided. New research by professors Kevin Callison and Robert Kaestner published in Regulation questions whether further raising cigarette taxes will do much to decrease smoking rates. They find that adult cigarette use is largely unaffected by taxes. Moreover, they estimate that a large increase, possibly about 100 percent, would be required to decrease smoking rates by just 2 to 3 percent. This flies in the face of the conventional arguments provided by cigarette tax advocates.”

The Taxpayers Protection Alliance (TPA) hopes that the state legislatures in Washington and Alabama will halt any efforts on tobacco tax increases as well as efforts to create new taxes on vaping products. Neither will do any good for the economy in those states and will only do more to encourage illicit trade and drive consumers from the market, which in the end will harm taxpayers in Washington and Alabama, or any other state that is considering tax increases.