Saturday, September 13, 2008

Utah Contemplates Raising Cigarette Taxes To $2.00 Per Pack, But What Will Happen To Tax Revenues When The Number Of Smokers Declines?

Fifteen Utah health organizations will propose the nation's largest-ever cigarette tax increase next week, seeking to raise the state tax to $2 per pack and potentially generating nearly $50 million or more for health programs. Full story published September 13th, 2008 in the Salt Lake Tribune.

Michael Siler, director of government relations in Utah for the American Cancer Society, said the move makes sense on several levels. "We have seen statistics that indicate our smoking rates are on the rise, we know we have significant health care costs associated with smoking", he said. "We know that by increasing the tobacco tax a number of people will quit just because of the increase, which will have an effect on the health of Utahns".

The proposal, which The Alliance for Tobacco-Free Living plans to push during the 2009 legislative session, would raise Utah's current 69.5-cent tax to an even $2, moving Utah's cigarette tax from 34th highest to sixth highest in the nation, and would be the biggest hike ever adopted. It would bring the cost of an average pack of cigarettes to more than $5.

The increase would generate an estimated $48.7 million a year, which the groups want dedicated to defraying health care costs, funding smoking cessation programs and potentially funding some of the health care reforms the state is exploring.

The alliance estimates that raising the tax would also motivate 14,456 smokers to kick the habit, many of them younger smokers who are still in high school. That will cut at least $4.6 million from the $345 million annual smoking-related health care costs, the group says.

The alliance has yet to find a sponsor for the legislation. One prospective sponsor is Republican District 13 Rep. Paul Ray (R-Clearfield). In the 2008 session, he sponsored HB355 to enact a 50-cent cigarette tax hike, but the bill never made it through the House. In January 2009, he plans to come back with a proposal to increase the cigarette tax by a full dollar and says he would be on board with the larger increase, as well. Ray is being challenged in the upcoming general election by Democrat Ben Wofford.

Some lawmakers say they would oppose a tax increase because it would simply grow government. "A tax increase is a tax increase and I don't support tax increases, including sin taxes", said Republican District 51 Rep. Greg Hughes (R-Draper), chairman of the House Conservative Caucus, who opposed Ray's bill last year. Hughes is also being challenged in the upcoming election by Democrat Lisa M. Johnson.

But what none of the anti-smoking zealots address is the question on what to do once enough people quit smoking to reduce cigarette tax revenues. How do you replace the revenues, or what programs do you cut? These are questions currently being confronted by elected officials in Fairbanks, Alaska. At present, Fairbanks smokers are being taxed four different ways, as follows:

- Federal taxes: 39 cents per pack.
- Alaska state tax: $2 per pack, seventh highest in the U.S.
- Fairbanks North Star Borough: 8 percent tax for distribution of tobacco
- City of Fairbanks: 8 percent tax.

These taxes comprise up to 75 percent of the cost of a pack of cigarettes, and have driven prices up to between $6.00 and $7.25 per pack. As a result, people are quitting; the number of smokers in Alaska has dropped by one-fifth since 1996. Only 21.5 percent of Alaskans smoke now.

And also as a result, tobacco tax revenue in Fairbanks has fallen. From $838,666 in 2004, it dropped to a little more than $625,000 in 2007, and is projected to fall to $515,425 in 2011, according to the Fairbanks Daily News-Miner. And local elected officials are starting to sweat.

But at least Fairbanks can turn to the state of Alaska for help. Currently Alaska enjoys a large surplus as a result of high oil prices, which makes it easy for Governor Sarah Palin to market herself as an economic "conservative" without causing pain. Alaska also has the Permanent Fund. But where does Utah turn if tobacco tax revenue starts nosediving? There's no Utah "Permanent Fund". There are only the taxpayers.

And here's another wrinkle. While Fairbanks is buried in the middle of Alaska, too far away from any place else as an alternative to high cigarette prices, that's not the case in Utah. Wasatch Front smokers can easily hop over the border to Evanston, Wyoming to get cheaper Wyoming smokes. So much for Utah's tobacco tax revenue.

This is why taxes should be levied primarily to raise revenue, and not to modify behavior. Just as ordinary people "grow" into pay raises, so governments "grow" into increased taxes. Unless this proposed cigarette tax can be crafted in a way to prevent it from sunsetting itself through attrition, the state legislature is better off not enacting it. Don't repeat Fairbanks' mistake.

2 comments:

petertparker said...

Hi Nice Blog wait until you want to quit. you really really want to quit. and then stop. stop thinking of yourself as a smoker. stop debating if you should or not. nothing makes you smoke... its not like way to quit smoking there is not easy way to do it.so save your money and show some mental strength.

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