Same tactics, different substances, outcomes remain the same. An institutionalized embrace of self-righteous folly:
It's Time We Learned from Sin Taxes' Impressive History of Failure
Reason Magazine by J.D. Tuccille
Samuel Johnson reportedly joked that a second marriage is the triumph of hope over experience. But marriage at least has sex to recommend it. The screwing that politicians give us when they return to the same failed policies time and again are far less enjoyable. But return they do, most recently to sin taxes on cigarettes, booze and, now, junk food and sugary drinks. They promise that these taxes will both discourage disfavored behavior and stuff government coffers with proceeds mugged from ill-living sinners—mutually incompatible goals that such taxes have never fulfilled.
And, in their courting of false hope and spurning of actual experience, politicians ignore the unintended consequences that sin taxes always have delivered.
In budgets adopted last month, Connecticut, Kansas, and Nevada hiked state cigarette taxes amidst flurries of predictions of a new influx of cash nabbed from the nicotine-stained fingertips of smokers. Nutmeg State advocates predicted that a $1.50 hike in Connecticut "would yield more than $60 million annually while driving tens of thousands of state residents away from tobacco." (Connecticut ultimately boosted the take by $0.50 to $3.90 per pack.) Nevada's one dollar rise to $1.80 per pack would "prompt more than 15,400 adult smokers in Nevada to quit, all while raising more than $192 million in new revenue in the first two years," insisted Christopher W. Hansen, President of the American Cancer Society Cancer Action Network. The Kansas City Star editorial board similarly called a cigarette tax hike ($0.50 to $1.29 per pack) "a victory for a healthier Kansas while generating a few more dollars to keep the state out of debtor's prison."
But legislators can only hope to reap cash rewards while punishing smoky pleasures by ignoring history. After Connecticut's recent sin tax victory dance, The Hartford Courant noted that cigarettes sales have dropped for years, not necessarily inspired by the tax rate. "From 2012 through the first few months of 2015, when there haven't been any tax increases, the average monthly consumption rate for the year as a whole has decreased by 7.4 percent from the prior year."
The cigarette tax take has similarly eroded, along with sales. The newspaper concluded that declining smoking rates doomed efforts to turn tobacco into a revenue bonanza. That may be true, but it's also true that cigarette taxes have become so punitive, and so disparate across jurisdictions, that the ranks of remaining smokers—dedicated to their vice and resistant to efforts to make them quit—are acquiring their smokes outside the usual channels, in defiance of efforts to empty their pockets or scrub their lungs.
It's "Prohibition by price," Michael LaFaive tells me. He's an economist with Michigan's Mackinac Center for Public Policy, which, among other things, studies the effects of skyrocketing cigarette taxes. And just as overt efforts to snatch booze from Americans spawned a dynamic and dangerous black market in smuggled liquor, his organization's research reveals that implicitly prohibitionist schemes to make tobacco unaffordable have already done the same.
In New York, where authorities boasted just weeks ago of busting a $3 million smuggling ring, 58 percent of all cigarettes sold in the state are smuggled. With state taxes at $4.35 per pack, and New York City imposing another $1.50 charge, it's a no-brainer to load trucks at Virginia's $0.30 per pack rate and illegally drive them up Interstate 95 to customers suffering the country's most onerous tax.
The recent tax hikes "are going to fuel additional smuggling," LaFaive warns.
Scott Drenkard, an economist with the Tax Foundation, which co-publishes cigarette tax studies with Mackinac agrees.
"I think it's very likely that cigarette tax increases in Kansas will contribute to new smuggling activity there, especially because bordering Missouri has the lowest cigarette excise tax in the country at $0.17 per pack," he says. Fifteen percent of Kansas's smokes are already purchased on the black market; that figure isn't going down.
Both economists expect Connecticut to see similarly increased smuggling, and Drenkard even fingers the likely source: New Hampshire, where cigarettes are taxed at a far cheaper $1.78 per pack.
LaFaive points out that the modern phenomenon of illicit "loosie" sales of single cigarettes are a direct descendant of Prohibition-era sales of single shots of whiskey outside factory gates. Even as we try to reinvent policy, we recreate old mistakes, and their unintended consequences.
Or maybe we just go back to the source and stupidly copy them over again.
Kansas Governor Sam Brownback (R) originally wanted to hike liquor taxes too, though that plan was shot down. Connecticut doubles down on the stupid by taxing consumers without profiting state coffers—the state sets minimum prices for retailers. These schemes are in keeping with the Centers for Disease Control and Prevention's Community Preventive Services Task Force which "recommends increasing the unit price of alcohol by raising taxes based on strong evidence of effectiveness for reducing excessive alcohol consumption and related harms."
So… how high is high enough?
The Tax Foundation helpfully reveals that excise taxes range across the country from zilch in Wyoming to $35 per gallon of liquor in Washington. That range of rates is an open invitation to fill the backs of trucks and haul loads of booze across borders, which is exactly what happens.
Mackinac's LaFaive points to the Michigan-Indiana border as a high-traffic area for liquor smugglers. Michigan's state government maintains a wholesale monopoly on spirits, and charges $11.90 per gallon in taxes. Indiana allows a competitive market with taxes at $2.68 per gallon.
The result, as the Michigan Liquor Control Commission complained (PDF) in 2007 is that alcohol smuggling contributed to a "conservative annual estimate of $14 million dollars in loss to the state" in revenues. Indiana and Wisconsin (PDF) were fingered as the major sources of the black market stuff.
But should prohibitionists at least give themselves a pat on the back for sacrificing a little revenue in the name of blessed sobriety?
Britain's Institute of Economic Affairs reported in 2012 that high alcohol taxes don't discourage drinking anywhere they looked on the planet. "[T]his research shows that the amount of drink consumed in high tax countries is exactly the same as in low tax countries."
Taxes just fuel black markets, including smuggling and illegal production.
The latest frontier in government efforts to tax us into a future of healthy virtue and budgetary black ink involves levies on sugary drinks and junk food. In April, the Navajo Nation became the first U.S. jurisdiction to impose a specific tax on chips, cakes, and other foods the experts say we're not supposed to eat. The tribal government adopted the measure shortly after Berkeley, California voters subjected themselves (and their unwilling neighbors) to a penny-per-ounce tax on sodas, sports drinks, sweet teas and other sugary beverages.
Learning from past experience, could we be in for the cakes and cokes Mafia?
Actually, maybe not. LaFaive and Drenkard say that these sorts of taxes are even more problematic than those on booze and smokes, since they target tastes rather than specific products. Junk food and sugary drinks have lots of substitutes, and it's impossible to chase them all down.
Chips can be replaced by popcorn that you salt and butter yourself, LaFaive points out.
"The health literature on soda taxes shows that they decrease soda consumption, yes, but people just increase their calorie intake from other sources to make up the difference," notes Drenkard. "A 2010 study showed that adolescents often switch to milk (which actually has more calories), and a 2012 study showed that older consumers switch to beer."
So people want what they want and aren't so easy to bully into preferred behavior—or be forced to pay for the privilege. You don't say. Maybe that's a lesson politicians should have gleaned from the historical evidence long ago.
And maybe we all should have learned by now, despite our hopes to the contrary, that politicians and their control freak friends don't acknowledge their failures.http://reason.com/archives/2015/07/21/its-time-we-learned-from-sin-taxes-impre