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Up In Smoke

Why an increase in tobacco tax is a terrible idea

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I don't know what the folks at the American Cancer Society are smoking. Last week they began a campaign to urge North Carolina legislators to increase the state's cigarette excise tax as a way to help pay the state's skyrocketing healthcare costs and alleviate possible health care cuts. I don't know where these people have been getting their news for the last year, but they must have somehow missed the part where North Carolina leaders made national headlines for using millions of dollars from the tobacco settlement that were supposed to go to create jobs and pay tobacco-related healthcare costs to create their own political slush fund.Instead of being used for its intended purpose, the tobacco money wound up in the bank accounts of political cronies, tobacco farmers and various politically connected North Carolina companies that promised to stay in the state in exchange for hundreds of thousands of dollars -- despite the fact that most of these companies had no plans to leave to begin with. The Golden LEAF Foundation, the non-profit entity created to dole out the money, continues to make questionable donations despite the media attention. Now these people and their friends at the American Cancer Society want us to fall for the same "save healthcare in North Carolina" line again.

Perhaps the folks at the Cancer Society don't care how politicians and their friends waste the money higher cigarette taxes would generate as long as cigarette smokers are penalized by having to pay it. The only problem with this feel-good solution is that a growing body of evidence contradicts the American Cancer Society's claims that hiking tobacco taxes stops people from smoking. Worse yet, the practice appears to be hurting the same parties it was intended to help.

Studies show that tobacco-addicted consumers consider cigarettes a necessity, not a luxury. Because a rise or fall in income has little impact on a smoker's decision to buy cigarettes, the brunt of the burden of cigarette taxes falls on low-income people. Not only do these people have less financial access to often-expensive smoking cessation aids like nicotine patches ($35 for seven days worth) or anti-smoking prescription drugs ($35 to $129 a month depending on your health plan, if you have one), a study of the New York City cigarette tax hike by the Tax Foundation found that individuals and families that make $20,000 or less pay .50 percent of their total income in tobacco taxes while those who make $200,000 or more pay .01 percent of their income in tobacco taxes. Given our state's well-documented history of parceling out cigarette money to wealthy and politically connected businesses and individuals, a hike in cigarette taxes amounts to an excuse for stealing from the poor to give to the rich.

Worse yet, the practice hurts small business owners and employers for whom cigarettes are a significant part of their profits, as well as the city and state agencies that tax them. By the summer of 2002, cigarette sales were down 50 percent, which resulted in a $127 million decrease in cigarette profits by NYC stores, many of which were chain and independently owned gas stations and convenience stores. Estimates on the number of jobs lost in NYC due to the tax hike? Around 10,000 full and part-time jobs, according to the Beacon Hill Institute. But at least people were smoking less, right?

According to a survey by The Polling Company, Inc., after New York City raised its cigarette tax from $.08 a pack to $1.50 in 2002 on the heels of a New York state cigarette tax hike of $1.11 a pack, 67 percent of the city's smokers said they didn't smoke any less than before and another seven percent said they smoke more now because the tax encourages them to buy in bulk. Instead, 53 percent reported that they had purchased cigarettes outside the city through cross-border sales, mail order, the Internet and from unlicensed street dealers.

The economic impact of this is staggering. For convenience store owners, the loss of cigarette profits was compounded by the loss of revenue from other items smokers usually purchase in addition to cigarettes. On average, NYC consumers who go to convenience stores specifically to purchase a pack of cigarettes spend an additional $1.91 on other items. Because of the 189 million pack per year decline in cigarettes sold since the tax increase, $360 million dollars in additional purchases didn't take place.

While the city will still likely rake in about $134 million from the tobacco tax hike, when its sales tax losses on cigarettes and other items are combined with a loss of $73 million to $146 million in taxable income from lost jobs and loss of personal income to store owners, the city winds up in the red.

As you can see, this is not a scenario worth repeating here. Our politicians can't be trusted with this money and our economy can't afford another hit.

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