Bluegrass Beacon: Don’t be conned by the fool’s gold of cigarette tax hikes
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The new wrinkle in anti-smoking crusaders’ annual demand to raise Kentucky’s cigarette tax is that hiking taxes to fund the Medicaid expansion is somehow a better approach than moving able-bodied adults from government dependency to the fulfillment offered by work and independence.
Ironic, isn’t it, that these devotees are willing to raise a tax that will hurt poor Kentuckians more than any group while vehemently defending the status quo that keeps low-income citizens – the very group they claim to represent – dependent on a government program?
They often point to Indiana, where crusaders succeeded in convincing lawmakers to raise the cigarette tax by 44 cents in 2007 by agreeing to target the increased revenues to fund health insurance for lower-income Hoosiers.
However, these same proponents conveniently ignore the fact that Indiana’s current cigarette tax of 99.5 cents remains well beneath the state average of $1.65, and that sales dropped by nearly 18 percent – almost 100 million packs – in the first nine months following the hike.
While those results do reinforce the free-market maxim “what you tax you get less of,” they don’t exactly engender optimism that raising cigarette taxes by a whopping $1.50 would, as imagined by the American Cancer Society Cancer Action Network, “be a stable source of additional revenue for the state.”
Rather, it’s fool’s gold.
State lawmakers should not be conned by this very political and ideologically liberal network into thinking raising cigarette taxes will increase and stabilize funding for Medicaid or any other government program, for that matter. This is, after all, the “network” that supported Obamacare even though it’s had a devastating impact on cancer patients.
Plus, it’s a distraction from thinking bigger concerning policies that simplify the tax code, encourage job creation and eliminate Kentucky’s dependence on revenue from corporate and individual income taxes, which are particularly harmful as they discourage productivity by punishing success.
What’s likely to happen if Kentucky increased its cigarette tax from the current 60 cents to the $2.10 per pack – as recommended by the network – is like what was predicted will now occur in Pennsylvania following lawmakers’ decision this summer to hike cigarette taxes by 63 percent to $2.60 per pack.
The Commonwealth Foundation’s Elizabeth Stelle argues the dramatic increase could actually cause tax revenue to decrease over time as consumers travel across state lines to purchase cheaper cigarettes.
“Tobacco taxes are not going to be enough,” Stelle told the Heartland Institute’s Budget and Tax News. “More people are going to go out of state to buy cigarettes, more smuggling of cigarettes is going to go on in the state, and possibly more people will be in the welfare system as they find it tougher to fund their habit and meet other daily needs.”
If there’s a concern that raising the cigarette tax will result in black market-type activity in Pennsylvania – which at $1.60 is already 22nd-highest in the nation and is either the same or lower than five of its six neighboring states – isn’t it prudent to address the possibility of such goings-on in Kentucky, where 40 percent of the population lives in a county bordering another state and where the kind of increase sought by pro-tax cheerleaders would jack up the tax from third-lowest to absolute highest among surrounding states?
Lawmakers should stay focused on following through with the common-sense reforms needed to improve our state’s overall tax policy and ensure the sustainability of Kentucky’s Medicaid program while leaving any and all cigarette-tax increases behind.
Jim Waters is president of the Bluegrass Institute; Kentucky’s free-market think tank. Reach him at jwaters@freedomkentucky.com. Read previously published columns at www.bipps.org.