Monday, February 23, 2009

Marathon Pundit attacks higher cigarette taxes

Whoah...what is this? Marathon Pundit, who has run 31 marathons, is against raising Illinois' cigarette tax?


No, I haven't started smoking, and I believe that people who are smoking should quit. And people who don't smoke shouldn't start.

For decades society has been denigrating smoking, and society has been listening, the percentage of smokers among the population continues to trickle down.

Like most states, Illinois is facing a serious revenue shortfall. There's a proposal in Springfield to double the state tax on cigarettes.

It's not a good idea.

Illinoisans currently pay 98 cents a pack in state taxes, which puts the Land of Lincoln at the median compared to other states. However, local municipalities and counties can add their own levies on packs of cigarettes, which of course tax-happy Cook County, where I live, as well as Chicago, have done so with glee. Cook adds $2 bucks a pack.

Without figuring in those local taxes, of the states bordering Illinois, only Iowa and Wisconsin have higher cigarette taxes.

The new state tax would put Illinois ahead of those two states.

What about the revenue the state hopes to rake in? Well, a few smokers will quit. But many enterprising souls will purchase cigarettes over the internet, or drive to a state with lower taxes to purchase smokes. Until Indiana upped its cigarette tax two years ago, there were many cigarette shops--they didn't sell anything else--just over the border from Illinois. Southeastern Cook County borders the Hoosier State.

And there is no guarantee that Illinois will take in additional revenue, Reason Magazine raises a good point:

In 2006, New Jersey raised its already high cigarette tax, thinking it would bring in an extra $30 million a year. It didn't. Worse, it caused their actual collections to drop by more than $20 million. The tax increase threw the state's budget off by $50 million, money that had to be made up by other taxpayers. This isn't unique to the Garden State. Since 2003, there have been 57 cigarette tax increases across the country. In 37 (68 percent) of those cases revenues failed to meet projections.

The federal government is adding a 61 cent per pack increase in its cigarette tax to pay for the SCHIP program.

Here's what the Wall Street Journal says about smoking taxes:

"No other federal tax hurts the poor more than the cigarette tax," says the Tax Foundation. These are the same folks the Obama Administration wants to help by raising the amount of the earned-income tax credit, but wait. A 61-cent cigarette tax hike is the equivalent of a 25% cut in that tax credit for some low-income families. So the politicians give these families money with one hand and take it back with the other.

Oh, and there's another problem. The number of smokers keeps falling, but health-care costs keep rising. So paying for the biggest new health-care expansion in years with a declining revenue source is a guarantee of future red ink that will increase pressure for higher income taxes too. Just ask the politicians in Maryland, who doubled their cigarette tax two years ago to finance a new health-care program. That has led to 25% less tobacco revenue than expected because of declining sales, so the program is already in the red after its first year. But hey, it's the thought that counts.

Let's talk about small business. Mom-and-pop convenience stores derive much of their revenue from cigarette sales. I often give a co-worker a ride home, he smokes, and sometimes on the way to his home he asks me to stop at a 7-Eleven to pick up a pack of cigarettes. He doesn't buy anything else there.

Retailers like that 7-Eleven are vulnerable during a downturn. Small businesses are the driving force of our economy.

Don't raise the state cigarette tax.

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