Please see my previous blog on a soda tax being passed in Berkeley. The following are my random thoughts on the subject.
Taxes have been a necessary evil since the beginning of time. They have funded honest and corrupt government alike. They have caused corruption, murder, abuse, revolt and the overthrow of countless governments and entire countries (the USA included).
Taxes change. The county where I live has houses that are built right up against old country roads. Why? They are old toll houses for roads and bridges. The tolls are gone but now we pay gasoline taxes to fund our roads. Our state just raised our tax by 10 cents a gallon, oh boy!
Governments need income to exist. Bigger governments need more taxes. Getting that money is a challenge. No one wants to pay more. In search for revenue, the new idea is to go after unpopular behavior. These so called “sin taxes” are meant to be two fold: raise revenue from the behavior/product and limit it the behavior at the same time. Over the past several decades the hottest “sin” has been cigarettes. The big new “sin” to watch is marijuana which I believe will be legalized across the country as a huge revenue source.
The other new “sin” is sugar beverages. New York City has tried to tax this and failed. The city of Berkeley has succeeded and is implementing a one cent tax per ounce of soda. The premise is that sugar causes health problems so they will tax it to “punish” the behavior and raise money to deal with the health problems.
We only need to look at the cigarette taxes to see how this works:
Cigarettes are among the most heavily taxed consumer products in the United States.
Federal, state and local governments collect more money from the sale of cigarettes than retailers, wholesalers, farmers and manufacturers do combined.
In FY 2013 alone, between federal, state and local taxes and tobacco settlement payments, the government raked in more than $43.9 billion.
Since 1997, the weighted state average tax has gone up 287.5 percent – from 32.1¢ to 124.4¢ in FY 2013.
From 1997 to 2013, there have been 130 state excise tax increases, including in the District of Columbia.
Total state excise tax revenues have risen 130 percent, from $7.3 billion in FY 1997 to $16.8 billion in FY 2013.
- As of November 2013, the average retail price of a package of 20 cigarettes (full-priced brands) was $6.19, up from $4.53 in 2007, including federal, state and municipal excise taxes.
- Payments to the government, on average, for 44.4 percent of the retail price of cigarettes.
- Around 65 percent of all tobacco sales occur in the nation’s 151,282 convenience stores, according to a National Association of Convenience Stores (NACS) study.
- The average convenience store sells about $600,000 worth of cigarette each year. In addition, cigarette sales are the number one in-store item for these stores, comprising about 40 percent of in-store revenues.
Where does all that money go?
To help guide state governments, in 2007 the Centers for Disease Control and Prevention recommended that states reinvest 14 percent of the money from the settlement and tobacco taxes in anti-smoking programs. But most state governments have decided to prioritize other things: Colorado has spent tens of millions of its share to support a literacy program, while Kentucky has invested half of its money in agricultural programs.
“What states have actually done has fluctuated year by year … but it’s never come close to 14 percent,” Levin says. “There are some fairly notorious cases of money being used for fixing potholes, for tax relief [and] for financial assistance for tobacco farmers.”
Cigarette taxes and settlement agreement funds are supposed to fund youth smoking prevention programs and other tobacco-related public health programs, but that’s not always where the money really goes. Instead, more and more of your taxes are used to fund causes and projects unrelated to tobacco control. Here are just a few of the projects funded by your MSA dollars:
New York: Dump trucks, golf carts and irrigation system, and a new county jail
Virginia: Broadband cable networks
New Jersey: Psychiatric care for prisoners
Alabama: Boot camps for juvenile delinquents; alternative schools
Nevada: Upgrading public television stations with DVD technology
Alaska: Harbor renovation and museum expansion
South Carolina: Water and sewer improvements
Michigan: Pasture and weather monitoring for a thoroughbred association in Kentucky
Kentucky: College scholarships
California: City parks and the purchase of undeveloped land
Illinois: A senior citizen prescription-drug program and property-tax rebates
Maine: Medicaid dental services
North Dakota: Water Resources Trust Fund and flood-control projects
Since 2000, federal taxes on a pack of cigarettes have increased 197 percent.
– Since 1998, the average cost of a pack of cigarettes has more than doubled (from $2.17 to $5.76).
Since 1998, governments at all levels have collected more than $528.5 BILLION in cigarette taxes (including sales tax) and payments from smokers.
Sources: Tax Burden on Tobacco, Historical Compilation, Vol 46, Orzechowski and Walker, Arlington, VA, 2013; Behavioral Risk Factor Surveillance System (BRFSS), Centers for Disease Control and Prevention.
In 2000 Massachusetts spent $54 million on anti-smoking programs. Back then the state was a national model. But tough financial times caused the legislature to use that money for other needs.
The President’s proposal to raise the federal excise tax on tobacco products and use the additional revenue to expand preschool education, which he included in both his fiscal year 2014 and 2015 budgets, could achieve the dual goals of reducing the number of premature deaths due to smoking and raising an estimated $78 billion over ten years to finance early childhood education.
Tobacco taxes are a proven strategy to reduce smoking, particularly among teenagers and low-income people. Given the high health costs of tobacco use, reducing smoking rates would lead to substantial health gains. Moreover, youth and lower-income people would benefit disproportionately from improved health, partially offsetting the regressivity of tobacco taxes, and lower-income children and families would be the primary beneficiaries of the expanded availability of early childhood education that these tax revenues would finance.
So, how are the cigarette taxes working? 1) smoking has decreased but I assume that it is the all out war against smoking with the taxes being a small part of it. 2) the poor and uneducated have the highest numbers of smokers so these taxes have been heavily weighted against them. 3) Very little of the billions raised has been used to stop smoking. Instead it has been a huge revenue boost to all governments.
Why is this permitted? One reason: it’s a “sin” tax. Popular society wants to stop smoking so it turns a blind eye to the abuse of the taxation. I’ve never smoked and I hate tobacco smoke. Personally, I don’t care how much cigarettes cost. I don’t stop to consider that the government is taking a huge portion of that money.
If we levied an unbalanced income tax against the poor, everyone would protest. The same attitude prevails with alcohol, lottery tickets, gambling, and will follow through the same with marijuana, and with sugar beverages. Will it change any behavior? No. Will it raise revenue? Yes.
So the government wants to tax soda. Ok, why not tax wholesale sugar? That would be too difficult. It would affect farmers and too many consumers. Why not tax potato chips? Fast food? Watching TV? All of these are society “sins” that cause health problems. Maybe the government will. It’s an easy pitch: This is harmful behavior that is causing great expense to society and causing death so we should tax it to reduce it.
Should we stop smoking and drinking sugar beverages? Absolutely. Should the government be using “sin” as an income source? Ask the fine people of Berkeley.
My personal sin is the Dew. I don’t smoke, drink booze, gamble, play the lottery but I love my Dew. I constantly try to stop. Taxing it will make me angry but will it make me stop? hmmm, I’ll let you know.