Already Saddled With High Tax Rates, California Smokers Could Feel More Pain

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If State Senator Kevin de León has his way, the smokers of California may soon experience sticker shock when they go to their local store to buy their next pack of cigarettes. If SB 768 is approved, a $2-per-pack excise tax increase would be added to the price of cigarettes, taking the current tax from $.87 to $2.87 per pack — and making the total price for a pack of cigarettes in California around $ 7.50.

Strongly supported by the American Heart Association, the American Lung Association and the American Cancer Society, Senator de León’s proposal is intended to help offset California’s rising healthcare costs, which are becoming unsustainable. It is hoped that, as a side benefit, the increased tax might encourage smokers who can’t afford the higher price to extinguish their cigarettes for good. Consumption reduction would seem a noble cause, as would increasing revenues for the state, which are badly needed.

If passed into law, it is estimated that the state could realize a $ 1.2 billion windfall in annual revenues. At the present time, however, no specific program is earmarked for the funding. Needless to say, in a state that desperately needs money to fund all sorts of other programs, the possibility of misappropriation is certainly not inconceivable.

On the other side of the issue, California voters rejected raising cigarette taxes on two prior occasions, and that was for only a $1 increase. California law enforcement has been against these tax hikes because they foresee an increase in criminal activity. Other states that have gone down this path have met with several of those unintended negative consequences.  For example, Indiana’s cigarette tax is relatively low, and so Chicago has been complaining for some time that people will avoid paying the high cigarette prices by simply driving to the Hoosier State, buying a few cartons, bringing them back to Chicago, selling them at prices lower than Illinois’ rates, and pocketing the difference. Kentucky’s tax isn’t too high, but it also finds its citizens crossing into Indiana to buy their cigarettes, sell them cheaper back home, and still realize a healthy profit margin. It would only stand to reason that California smokers would drive to Nevada where cigarette prices are $6 or Oregon where they’re $ 5.75. This would defeat the whole purpose and cause the state to lose some of the cigarette tax revenue it has now.

Like drinking alcohol and taking drugs, smoking tobacco is an addiction, and history shows that addicts will resort to whatever means necessary to feed their habit. If it is a lucrative enough opportunity, you can bet that drug smugglers will have their hands in it as well. Other states with high tobacco taxes, like New York, have reported higher levels of black-market smuggling, a large source of money for gangs and organized crime. By one 2011 estimate, three of every five cigarettes smoked in the Empire state was purchased illegally!

When weighing the benefits of the proposal, the California legislature would be wise to assess all of these possibilities, and resist the temptation of simply being blinded by the cash.