Guest Editorial: Sin tax gain goes up in smoke
New York state offers a classic example of the failings of “sin taxes.” Facing a budget crunch in 2010, the Legislature increased the cigarette excise tax by $1.60 per pack (58 percent), to a total of $4.35 per pack, by far the highest cigarette tax in the nation. In New York City, which additionally imposes its own $1.50 excise tax, on top of the $1.01 U.S. excise tax and sales taxes, taxes have tripled the cost of a pack of cigarettes, to $13 or $14 a pack.
The tax was intended to serve two contradictory goals: enhancing state revenue and raising prices so high as to encourage people to stop smoking. Of course, the more people quit smoking, the smaller and less stable a cigarette tax becomes as a funding source. At the time, the state estimated that the tax would bring in an additional $290 million a year.
The tax almost met that estimate the first year, bringing in an additional $250 million, bringing the total to $1.6 billion. But overall cigarette tax revenue has plunged 25 percent since then, falling $400 million from that peak five years ago, and last year was $1.2 billion, less than before the 2010 tax was imposed.
People simply changed their behavior to avoid the tax, by seeking out cheaper alternatives, such as e-cigarettes and vaporizers, purchasing cigarettes online, crossing state lines to make their purchases, buying from black market vendors or getting their cigarettes from the hundreds of American Indian outlets, which do not have to pay state taxes.
Higher taxes have led to skyrocketing cigarette smuggling, which now accounts for 58 percent of the market in New York, the highest rate in the nation, according to the Mackinac Center for Public Policy. Mackinac estimates that, if California were to adopt the $2 per pack cigarette tax increase proposed by Democratic state Sen. Richard Pan its smuggling rate would double, from 31.5 percent to 63 percent, even surpassing New York’s.
To the extent that taxes are necessary, they should be fair and broad, not targeted at certain politically unpopular people and industries or used to engage in social engineering. Sin taxes should thus be eliminated, as politicians are among the last people to be trusted with determining and punishing sins.