Government should not be in the business of using taxes to alter citizen behaviors or discriminate against certain lawful products. Unfortunately it is, with harmful unintended consequences.
For years, lawmakers have passed so-called “sin taxes” on products they deem undesirable, such as tobacco. When lawmakers want to raise taxes on tobacco products, we are told the goal is to help people quit smoking. Whatever policymakers’ intentions, singling out a specific product or group of products – in this case, cigarettes – for discriminatory taxation is contrary to the principles of sound tax policy and will harm a state’s economy.
Cigarette taxes rarely bring in the amount of revenue that is promised. Cigarette excise tax increases negatively impact a state’s ability to compete economically with neighboring states that have lower tobacco taxes. Cigarette sales taxes will decline in a state with high tobacco taxes as consumers buy their products across state lines or over the Internet.
Between 2009 and 2013, approximately 32 states increased taxes on tobacco products. A full 91 percent of those tax increases failed to meet their revenue projections. In fact, budget gaps occurred in New Jersey, Hawaii and Washington, D.C. after tax increases caused revenues to fall below pre-tax-increase levels.
Cigarette taxes punish consumers for purchasing legal products because someone in government has decided they are bad for you, but small businesses reliant on revenue from cigarette sales would most clearly feel the damage from such a tax penalty. According to the National Association of Convenience Stores, cigarettes account for 31.3 percent of in-store sales nationwide. When states raise cigarette taxes and consumers take their business across state lines or to the Internet, retailers’ economic livelihoods take a hard hit.
Instead of preventing people from smoking, these cigarette taxes merely move business out-of-state, causing loss in revenue for state budgets and loss of jobs for those who work in industries heavily reliant on cigarette sales.
The tax code should not be used to target specific products or industries for discriminatory taxation. Enough is enough. The “sin tax” game has got to stop.