Cigarette Tax: Will California Learn from the Mistakes of Others?


According to Fox and Hounds, a California watchdog site that monitors business and politics in the Golden State, the California Senate fast tracked SB 768, a bill that would raise taxes on a pack of cigarettes by a whopping $2.00 per pack; a 230% increase over the current $0.87 per pack. Did I mention the bill includes automatic tax increases down the road, too?

Why is this a bad idea? Because nothing the bill’s sponsors want to accomplish will happen. Meanwhile, other bad things will. California legislators need only look at other states for proof.

Fox and Hounds notes that the move will increase crime. They cite the Mackinac Center which reports:

We find that New York currently holds the top position as the highest net importer of smuggled cigarettes in 2011, with smuggled cigarettes totaling a staggering 60.9 percent of the total market. Not coincidentally, New York also has the nation’s highest state cigarette tax at $4.35 per pack, plus another $1.50 levied in New York City.

Even worse, such smuggling helps to finance global terrorism.

Beyond crime, jobs will be lost. Fox and Hounds continues:

… job loss … goes hand in hand with the smuggling issue. Fewer cigarettes sold at stores will undercut the income especially of the many convenient stores around the state, putting jobs in jeopardy. According to the National Association of Convenience Stores, cigarette and other tobacco product sales account for more than 36 percent of all in-store sales at convenience stores nationwide.

Finally, it won’t do what California desperately needs it to do; increase revenues. Just the opposite, in fact. While it should be obvious from the smuggling equation above, let’s look at some real world results, shall we? In July 2007, Tennessee had its own 200% tax increase on cigarettes; from $0.20 per pack to $0.62 per pack.

For the state’s fiscal years 2004, 2005, 2006 and 2007 there was no specific breakdown in public statements regarding the revenue generated by tobacco tax collection. Obviously, though, cigarettes were sold and taxes collected.

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