Mississippians might be tempted to breathe easier as a result of action taken recently by the U.S. Senate killing the tobacco bill reported out of Sen. John McCains (R-Ariz.) Commerce Committee in May. Under the guise of reducing underage smoking, the legislation would have raised the federal excise tax on cigarettes by $1.10 per pack over the next five years and imposed hundreds of billions of dollars in punitive costs on the tobacco industry and, ultimately, the consumers of its products. Gary Black, a noted Wall Street tobacco analyst, pegged the actual retail price increase necessary to pay the tab at $2.70 per pack. Other estimates were as high as $4.50 per pack, which works out to an extra $1,000 or more per year for the average smoking household.
Because more than half of the tax revenue the bill was expected to produce would have come from people making less than $30,000 a year, many Mississippi families might have ended up paying more for cigarettes than they owe the IRS.
While the tobacco deal seems to have unraveled at the moment, dont start celebrating yet. Democratic lawmakers are trying to resurrect the McCain bill in the House and it is being attached as an amendment to every major piece of legislation being voted on by the Senate. Even House Speaker Gingrich (R-Ga.) has entered the fray by promising to introduce a more narrowly focused law targeting underage tobacco use.
Wont all of the anti-tobacco effort be worthwhile if, by jacking up cigarette prices and curbing tobacco advertising, Congress can achieve President Clintons goal of putting the tobacco companies out of business of selling cigarettes to teenagers? According to data from the U.S. Centers for Disease Control, seven of eight states that raised their tobacco taxes in recent years actually experienced increases in underage smoking. Peer pressure and examples set by parents, Hollywood, television, and popular culturenot cigarette prices or Joe Cameldominate the reasons why young people take up smoking. Far more likely, underage smoking will rise as cigarettes become an even cooler way of rebelling against social taboos. What better way to get teenagers to smoke than to tell them not to?
If the government were truly interested in curbing underage smoking, it would raise the penalties on the buyers and sellers involved in these already illegal transactions. As the Washington Posts James K. Glassman has suggested, for example, one could hand out $100 fines to children (or, better yet, their parents) if they are caught smoking or buying cigarettes. Teenagers could have their drivers licenses suspended for a year. These would be far more efficient ways of accomplishing the worthy goal of reducing underage smoking than imposing billions of dollars in taxes and other costs on the 47 million adults who smoke legally.
Only about two percent of cigarette sales are made to underage smokers in the first place. Children, who have had anti-smoking messages drummed into them all their lives, are already well aware of the medical evidence. As a matter of fact, economist Kip Viscusi finds that smokers in general and young people in particular consistently overestimate the health risks of smoking. Ironically, just two years ago the FDA proposed rules it said would cut underage tobacco use by 50 percent without a penny in new taxes.
If Congress succeeds in raising the price of cigarettes as much as some estimates suggest, a huge black market is likely to develop. Not only will this underground economy produce gangsterism and widespread disrespect for the law, it will place legitimate jobs at risk and provide children with unregulated access to tobacco products.
If there is no reason to believe that proposed congressional action will be any more effective in reducing underage smoking than previous government anti-smoking efforts, why do new taxes and regulations continue to be on the table? The answer, of course, is that the era of big government is not over. With a $75 billion federal budget surplus, Congress and the President know full well that the average citizen is not about to agree to pay more taxes. By kicking the tobacco industry when its down, though, Washington hopes to grab billions in new revenue to fuel its insatiable appetite. New bureaucracies will be created to regulate the industry and existing spending programs will be expanded by unprincipled politicians who, proving once again that there is no honor among thieves, couldnt resist loading up Sen. McCains bill with all manner of extraneous provisions. It was the Senates inability to stop itself from spending the loot twice over that ultimately sank the tobacco deal.
The tobacco industrys coffers are too tempting for Congress to let the McCain bill die for very long, though. If Washington succeeds in shaking down Big Tobacco, can Big Liquor, Big Soft Drinks and Big Macs be far behind?
|William F. Shughart II is a 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.|
This article appeared in Mississippi Clarion Ledger on Monday, June 22, 1998.
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?