Days before the North Carolina General Assembly convened for its 2009 session, Senate leader Marc Basnight suggested he may call for increases in
cigarette and alcohol taxes to address a portion of the state's large and growing budget gap. Though well-meaning, the Senator's idea is badly flawed.
Senator Basnight is right that state leaders must find a way to deal with the budget shortfall - which is projected to be as much as $3 billion for the 2009-10 fiscal year. Addressing the shortfall through spending cuts alone will hurt the economy - remember, government spending pays salaries, buys goods and services, and makes the investments that will form the basis of a more prosperous future for North Carolina. Program cuts would also weaken families and communities because adequately funded public systems - such as schools, courts, health inspections and so on - are vital to daily life.
However, not every proposal for raising money is a good idea. These particular tax-increase proposals (on cigarettes and alcohol) are really terrible policy ideas with negative consequences that will far outweigh the positive. First and foremost, they will unfairly burden low- and moderate-income taxpayers, who spend most of their incomes and are in fact more likely to be addicted to cigarettes that higher-income taxpayers.
Increasing taxes on them not only makes it harder for them to make ends meet - at a time when many of them have lost jobs or seen their hours cut - but it could also hurt the economy. Studies have shown that while a sizeable cigarette-tax increase can deter teenagers from smoking, adult smokers - the ones running households and supporting families - are unlikely to buy fewer packs of cigarettes because they cost more. Instead, they'll make cuts elsewhere, essentially taking the money out of their local economies.
So, while increasing cigarettes taxes at least ten percent makes sense as a tool to curb teen smoking, doing so to fill a budget hole is bad policy because it will only make future budget gaps greater. Unlike costs for state services like education and health care, which will surely continue to rise every year, cigarette tax revenues will actually decline over time as current smokers die off and fewer people pick up the habit. And alcohol taxes will at best grow with the state's population and will not keep pace with the cost of providing public services or the state's economy.
Happily, there are several better options for raising revenue than cigarette and alcohol tax increases. For example, North Carolina's tax code is littered with corporate tax loopholes that cost the state tens of millions of dollars and benefit no one except shareholders. Moreover, expanding the sales tax to include a few services, such as entertainment, would increase revenue and actually make the tax code fairer because wealthy people spend much more on services than working families. After all, does it really make sense to increase taxes on low-income people or cut services for struggling families when the state could instead require rich people to pay a slightly higher tax rate? (Increasing taxes on higher-income people does not hurt the economy because they have the resources to keep their standard of living going while saving a little less.)
The one criterion by which "sin tax" proposals fair well - and perhaps the only one considered by Senator Basnight - is known as "political feasibility", or in other words, they "poll well." Of course they do. The majority of us who don't smoke and don't drink heavily, so what's not to like about a tax paid by others.
But the entire state suffers from bad tax policy. Years of implementing short-term fixes and avoiding hard decisions is how North Carolina got into this mess. Doing what's in the best interest of the state doesn't always poll well. Nevertheless, North Carolina's leaders have a duty to fully evaluate all the policy tools available to them and choose the path that will put the state on the road to fiscal stability.
Tar heels that drink and smoke didn't cause this economic collapse so why should they alone bear responsibility for making it right? Quite frankly, they shouldn't.
The author of this article is:
all4smokers[dot]com
smokingbrands4sale[dot]com
marlboro4sale[dot]com
