Tobacco Tax – Conflicting Goals of Prop. 56

cigarette smoking ashesWhat is the tobacco tax increase for? Is the tax proposed in Proposition 56 to reduce smoking or to gain revenue? It seems the proponents’ goal is to be all things — a deterrent to smoking by raising the cost, plus raising revenue mostly for health care. Can they really have it both ways?

Raising the cost of a product means you will get less of it. The idea behind raising the cost of cigarettes and other tobacco products is to diminish and even eliminate their use. Previous tobacco tax increases have been accompanied by reduced use.

In a new study by the Proposition 56 campaign aimed at convincing the business community of the measure’s positive economic impacts, additional costs for a single smoking employee in health care costs and reduced productivity is calculated to be more than $5,000 per year.

The study also notes that, “From an employer ’s perspective, money spent on Medi-Cal is a good investment.”

About a billion dollars raised by the new tax would be dedicated to Medi-Cal. The idea is for an on-going financial commitment to the Medi-Cal program that has seen a dramatically increased population in recent years–and not just because of smokers. California has one the smallest percentage of smokers of any state.

The study briefly remarks on the loss of business for retailers who carry tobacco products asserting that the net benefit of eliminating “all” smokers would outweigh the costs involved from lost revenue of private sector retailers and lost government revenue. In this context, can we call eliminating all smokers a pipe dream?

If cessation of smoking is the prime goal, with all the economic benefits that the study says comes with the end of smoking, why not raise the tax instead of $2 a pack to $20 or more. That should discourage smokers.

But then all the revenue will disappear as well.

How important is the revenue goal of Proposition 56? If revenue diminishes with the decrease in smoking won’t those who benefit from the government dollars look for a replacement? In fact, Proposition 56 calls on the state Controller to transfer some of the new money to programs already benefiting from previous tobacco tax increases to make up the expected revenue loss if this measure passes. It stands to reason that those benefiting from the revenue haul from an increased tax will not want it to disappear.

There’s an example of such logic on the same ballot. California voters will decide on Proposition 55 to continue what was supposed to be a temporary tax.

Hospitals and health care union members are taking a two-prong approach to fund Medi-Cal. Go after dollars from the rich with Proposition 55’s extension of the income tax, and capture money from the poor who tend to make up the bulk of smokers with Proposition 56’s tobacco tax increase.

So, what is the intention of Proposition 56 — is it designed to discourage and ultimately stop smoking, or is it to raise revenue?

This piece was originally published by Fox and Hounds Daily