A few months back, those of us who figured Zygi Wilf should pay for his own real estate improvements rather than plunder the state treasury were vindicated when turned out that the “mechanism” (read: gimmick) the state planned to use for its share – “electronic pull tabs” – wasn’t going to deliver anywhere near the planned revenue. If things didn’t turn around fast (note: they will not), the state’s “contribution” to
Zygi Wilf’s investment the Vikings stadium will have to be paid for by all of us taxpaying ripe sucks out of the general fund.
That’s bad enough – and it’s just to cover a putatively fixed bill.
Messinger Dayton has started coming out with budget proposals. And along with some of those proposals (although, notably, not the one to repay part of the education budget “shift”) come some “mechanisms” to pay for them. Gimmicks, if you will.
Minnesotans, being virtuous in a passive-aggressive sort of way, love “sin taxes”; tobacco is a common public policy kick toy in this state. And
Messinger Dayton intends to jack up the price of cigarettes by 94 cents a pack.
It’s not going to work, of course.
For starters: cigarette taxes never, ever deliver the kind of revenue that their proponents expect.
Despite fanciful claims to the contrary, many tobacco tax hikes across the country have failed to produce the promised revenue. In 2009, Washington, D.C. raised its cigarette tax from $2.00 to $2.50 per pack. The District projected the new tax would generate $45 million in revenue, about 20 percent above 2009 levels. Instead, revenues came in $12 million below projections and $4.2 million lower than before the tax was imposed. Similarly, New Jersey reported a $52 million shortfall in tobacco tax revenues after it raised its cigarette tax by 17.5 cents in 2007.
The reason for this? Addiction notwithstanding, cigarette smokers are people – and people alter their behavior to avoid paying taxes on discretionary things like smoking. If a tax increase jacks up the price of a pack of smokes by 10%, then all other things being equal, people cut their spending.
“Yay!” say the tax’s proponents. ”10% of people quit smoking! Or they smoke 10% less!”. Some do. Others switch to cheaper cigarettes, or buy from the black market that always, inevitably burgeons whenever government cracks down on something people want; at any rate, people avoid paying the tax as best they can. It’s Econ 101.
(Indeed, the public health benefits of taxing smoking seem to have stalled over the past twenty years)
But government can’t seem to avoid the spending that was to be based on all that tobacco money, and goodness knows no DFL administration would ever roll back an expenditure that we can’t afford. Which means:
Due to these declining revenues, states often turn to broad-based tax increases to pay for an overspending problem. A recent NTU study also showed that 41 of 59 state tobacco tax increases from 2001-2006 were followed by more expansive tax increases within two years, as states attempted to make up for tobacco revenue that never appeared.
Just like the Vikings stadium; they’ll be after us to fill in the shortfall.
Gary Gross has also been covering this.
Comments welcome at Shot In The Dark.