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VIEWPOINT: Tobacco tax hike proposals ignore economic reality

CHICAGO—As Election Day draws near, voters are starting to tune in to the contentious presidential race, as well as to numerous down-ballot races and referendums.

In several states, such as California and North Dakota, voters also are being asked to consider proposals that would raise excise taxes to fund additional government projects. In some cases, voters are being asked to hand over their hard-earned money to the government to fund the creation of additional subsidies that would be used to prop up politically connected businesses, all in the name of "public health."

For instance, in California, voters will have to decide the fate of Proposition 56, a ballot question that proposes to impose a $2-per-pack tax increase on cigarettes. If approved by voters, the state excise tax on cigarettes would increase from 87 cents per pack to $2.87, a 230 percent increase.

Proposition 56 also includes language that would add new tobacco taxes to non-tobacco products, such as e-cigarettes, lest smokers respond to economic incentives and begin using less-harmful options.

Health insurance companies participating in Medi-Cal, one of the state government's many entitlement programs, would be among the tax hike's biggest winners. They would get an additional $1 billion in corporate handouts every year.

And despite promises of improved public health made by the proposal's supporters, only about 13 percent of the new tax's revenue would go toward government programs such as tobacco abstinence and cessation treatment programs, methods that offset the social costs of tobacco use.

In North Dakota, voters are considering a similar cash grab. Measure 4, if approved, would increase excise taxes on cigarettes from 44 cents per pack to $2.20, a 400 percent hike.

Perhaps surprisingly, the new tax money won't be used to offset tobacco's social costs; it will instead fund new entitlement spending. And unlike with Proposition 56 in California, pro-tax supporters haven't told North Dakota voters how they plan to use the money if the measure passes.

The tax-and-spend crowd instead is insisting voters blindly trust the promise the government will spend the additional money wisely — despite all the evidence showing governments rarely do.

One thing the two ballot measures — and most tobacco tax hikes in general — have in common is their lack of effectiveness when it comes to improving public health.

Studying tobacco consumption rates in 19 states over 29 years, University of Illinois-Chicago economics professor Robert Kaestner and Kevin Callison, associate economics professor at Grand Valley State University in Michigan, found in one of their studies that consumers are largely unresponsive to tax hikes. In other words, government gets more money in the name of public health, but public health doesn't usually improve.

"Estimates indicate that, for adults, the association between cigarette taxes and either smoking participation or smoking intensity is negative, small and not usually statistically significant," Kaestner and Callison wrote.

In the study, published by the nonpartisan National Bureau of Economic Research, the researchers suggest the effectiveness of tobacco taxes will continue to fall.

"This finding raises questions about claims that, at the current time, tax increases on cigarettes will have an important beneficial health impact through reduced smoking. It may be that ... further increases in cigarette taxes will have little effect because the pool of smokers is becoming increasingly concentrated with those with strong preferences for smoking.

"Alternatively, as cigarette taxes and prices continue to rise, smokers are taking other steps to thwart the impact of the price increase such as switching brands and increasing purchases on the black market."

Consumers and voters should demand the government programs they fund work efficiently and in the way they are promised. Increasing the price of consumer goods in the name of "public health," especially when using vague pledges such as those now being pushed forward in North Dakota, to create spending programs that don't improve public health is not a proper use of taxpayers' money.

Voters should reject such feel-good cash-grabs whenever and wherever they are proposed.

Hathaway is a research fellow at The Heartland Institute, a conservative and libertarian think tank.