Writing as Publius in Federalist No. 10, and drawing on numerous historical examples, James Madison warned that the gravest threat to American liberties would arise from the superior force of an interested and overbearing majority. Proposition 86, which would raise Californias excise tax on cigarettes by a whopping $2.60 per pack, is a Madisonian posterchild for majoritarian democracy run amok.
On the ballot on November 7 and, if the polls are to be believed, engaged in a battle that will go down to the wire, the proposed cigarette tax increase conceals the parochial interests of antismoking activists, healthcare professionals, the marketers of smoking cessation programs, and Sacramentos big spenders behind a smokescreen of altruistic concern for the welfare of the social outcasts, who, despite daily bombardment with information about the health risks, cannot or will not stop buying cigarettes.
Sin taxes, such as those levied on alcohol, tobacco, and junk food, are popular tools of public finance because they apply to goods selectively; hence they do not threaten the same voter backlash that would be triggered by an attempt to raise income, property, or general sales tax rates, all of which fall more broadly on the taxpaying public. Cigarettes fit this profile to a T. Smokers offer a convenient target for predatory taxation because they: readily identify themselves by their purchasing behavior; represent an eversmaller minority of the adult population; tend to be less educated, poor, and employed in bluecollar jobs; can be portrayed as imposing uncompensated external costs on nonsmokers; are relatively insensitive to increases in the price of cigarettes; and, most importantly, are less likely than the average citizen, because of their demographic characteristics, to go to the polls.
Evidently unembarrassed by the financial windfall produced by past increases in the states excise tax on cigarettes, the only complaint of Prop. 86s supporting coalition, which includes the American Cancer Society, the American Lung Association, and the Campaign for TobaccoFree Kids, is that the measure does not earmark all of the $2 billion the new tax is expected to raise for programs aimed at helping smokers quit or for treating smokingrelated illnesses. Forgetting for the moment (or at least until Election Day) that California already collects $1 billion every year from the tobacco companies as its share of the 1998 Master Settlement Agreement, monies which supposedly are to be spent for the same purposes, the fact of the matter is that already, smokers more than pay their own way with the current tax of 87 cents per pack. Whatever extra burden smokers place on Californias public healthcare resources is more than offset by the revenue generated by the excise taxes they now shell out, and ghoulish as it may be, by the resources they savethe pensions they do not claim, the nursing home beds they do not occupyon account of early death.
It is worth emphasizing that the public has an interest in reducing cigarette smoking, not to the extent that smokers harm themselves, but rather only to the extent that they harm others. No responsible economist has reckoned that such external costs amount to anything close to 87 cents per packin California or anywhere else. $3.47, which would be the tax per pack if Prop. 86 passes, is equivalent to exercising the nuclear option of predatory public finance.
If there is no public health justification for raising Californias cigarette excise tax by nearly 400%, the impetus behind Prop. 86 must have more mundane origins. The prospect of yet another taxpayerfinanced bonanza has aligned the interests of major health charities and other political pressure groups with Sacramentos insatiable revenue appetite, expressly to bamboozle the voting majority into shaking down the states smokers once again. Democratic though it is, majority rule can indeed end in tyranny, especially when a policys beneficiaries pay obsequious court to the people, convincing them that shifting the tax burden onto someone elses shoulders is for the others own good. A Prop. 86 victory, all the more so if by a razorthin margin, will teach Californias smokers the hard political lesson James Madison grasped more than two centuries ago.
|William F. Shughart II is Research Director and Senior Fellow at the Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.|
TAXING CHOICE: The Predatory Politics of Fiscal Discrimination
So-called sin taxesthe taxing of certain products, like alcohol and tobacco, that are deemed to be politically incorrecthave long been a favorite way for politicians to fund programs benefiting special interest groups. But this concept has been applied to such sinful products as soft drinks, margarine, telephone calls, airline tickets, and even fishing gear. What is the true record of this selective, often punitive, approach to taxation?