Commentary

Reason.org
September 25, 2006

Sticking it to Smokers
California's Prop. 86 would raise tobacco taxes to $3.47 per pack
By Geoffrey Segal

In November, Californians will once again decide whether or not to raise their cigarette excise tax. However, Proposition 86 takes the debate over tobacco taxes to a new extreme, proposing an unprecedented 300 percent tax increase, from the 87-cent per pack tax level established in 1998 by Proposition 10, to $3.47 per pack—3.5 times the national average.

The authors of Proposition 86 argue that by raising the price that smokers pay for cigarettes, many will quit. Experience suggests that price hikes like these do little to impact the rate of smoking. Rather, smokers find alternative and less expensive sources to get their cigarettes—avoiding the tax all together. Californians can easily get cigarettes over the Nevada border where even in legal quantities; personal shipments of cigarettes would result in savings of more than $50 per trip based on the difference in tobacco tax rates alone. Monthly trips to Las Vegas or Phoenix would save a two-pack-a-day smoker around $160 a month—enough to cover the round-trip ticket or gas.

What Proposition 86 is really about is extracting money from a minority of California taxpayers to fund a host of new health and social programs. More than half of the revenues will go to emergency and trauma care throughout the state. Another 40 percent of the funds will be used to expand health coverage to children from families with incomes between 250 and 300 percent of the federal poverty line: meaning even a family of four earning $60,000 would qualify for this new benefit.

In all, Proposition 86 consists of the 38 pages of mandates, new programs, and activities that over time will develop their own bureaucracies and become long term liabilities for the state. Spending in each of these programs would be shielded from normal oversight from the Legislature and Governor; they would receive their funding outside the normal state budget process. And contracts to implement some of the new programs would be exempted from state contracting rules, enabling further waste and corruption. Traditional public accounting safeguards are absent from Proposition 86 and taxpayers will have no way to ensure that spending is conducted in the public's best interest—and without a new proposition; there is nothing taxpayers could do about it.

Ultimately California taxpayers will be on the hook for the costs, regardless of whether the revenues from cigarette sales are rolling in. The non-partisan Legislative Analyst's Office notes over time revenues will decline, however, the expanded program budgets would eventually exceed available resources and significant additional, long-term financing would be needed.

Funding health care is a worthy goal. But the state of California already spends more than $73 billion a year on health care and we're doing a relatively good job. In fact, the American College of Emergency Physicians recently gave California the highest grade in the nation on its State of Emergency Medicine Report Card. And California has more emergency room doctors than New York and Florida, combined. The state also has one of the most generous health benefit systems for children, with 3rd highest income limit for what families can earn and still be eligible.

Proposition 86 is not the best mechanism to improve health care. While claiming the goal is to get smokers to stop, the authors of 86 seem addicted to the promise of new revenues and spending that would come from the taxes. If smokers quit, there wouldn't be revenue but there would still be the programs it implements. With 38 pages of new and expanded programs, these programs will compete for funding with existing education, transportation, and law enforcement needs, potentially leading to worsening deficits, cuts in programs, or further tax increases.

Our biggest addiction isn't tobacco. It is spending. Special interests have mobbed together to attack an unpopular and easy target—smokers—to raise money for a massive suite of new government programs that primarily benefit themselves.

Geoffrey Segal is director of government reform at Reason Foundation. An archive of his work is here. Reason's California-related research and commentary is here.