Monday, September 08, 2008

Alaska State And Local Governments Who Forced Windfall Tobacco Taxes On Us Now Crying Because Fewer Smokers Means Less Tax Revenue

KFQD conservative shock jock Dan Fagan is fond of saying "You can't tax your way to prosperity". And when it comes to tobacco taxes, he's absolutely right.

Driven by a spirit of political vigilantiism, deliberative bodies all over Alaska piled on windfall tobacco taxes for the advertised purpose of reducing smoking. And guess what? It's working. Fewer people in Alaska are smoking, and the decline in tobacco sales is cutting into the amount of tobacco tax money available for some government budgets. And tax-hungry governments are now starting to cry the blues. Full stories reported by the Fairbanks Daily News-Miner and the Anchorage Daily News.

The state Department of Health and Social Services reported in June 2008 that the number of adult smokers in Alaska has declined by one-fifth since 1996 to 21.5 percent, or about 27,000 fewer smokers statewide. And as those numbers drop, smaller municipalities are forced to look elsewhere for dependable income.

In 2007, the state brought in $72.6 million in tax revenue from cigarettes and other tobacco products (see page 64 and 84 of the report). The Fairbanks North Star Borough recorded almost $1 million in tobacco tax revenue; the city of Fairbanks pulled in a little more than $625,000. The latter figure is a drop from $838,666 in 2004, but based on projected numbers, is expected to fall to $515,425 by 2011.

While Anchorage smokers get bitten three different times, Fairbanks tobacco users get hit with four different tobacco taxes:

- Federal taxes: 39 cents per pack.
- Alaska state tax: $2 per pack, seventh highest in the U.S.
- Fairbanks North Star Borough: 8 percent tax for distribution of tobacco
- City of Fairbanks: 8 percent tax.

Add that up, and taxes can account for as much as 75 percent of the cost of a pack of smokes in Fairbanks. Retail prices on a pack vary from just over $6 per pack to as much as $7.25 per pack. The pricing in Anchorage is similar.

Fairbanks city officials aren't asking the public to light up to raise money, but they are seeking other revenue. "When we look at our projections, we are unfortunately in that constant mode of revenue development, and the tobacco tax is just another reason why we are constantly searching for alternative funding," Fairbanks Mayor Terry Strle said.

Retailers not only report a decline in overall sales, but a shift in sales from manufactured cigarettes to bulk tobacco. Higher fuel costs, particularly in the Interior, are also encouraging people to kick the habit.

Statewide, tobacco revenue has increased significantly with tobacco tax increases. The money goes to the state school fund, the general fund and the Tobacco Use Education and Cessation Fund. But just as ordinary people "grow into pay raises", so governments "grow into increased taxes". This means they become accustomed to and even dependent upon them.

The idea behind the state tax increases is that they serve as an incentive to quit or to discourage people from starting tobacco use. However, taxing to change behavior makes the tax "self-extinguishing"; it ends up incrementally sunsetting itself. This is why you should never enact taxes merely to change behavior; a properly-crafted "sin tax" should be designed to provide a stable revenue stream from the "sin" in question. Unfortunately, public officials allowed themselves to be led by emotional appeals rather than by logic.

So the state and the various localities decided to play God and impose repeated windfall taxes on tobacco for the moralistic purpose of changing behavior. Now the behavior's changing, tax revenues are declining, and public officials are crying. Too bad, so sad.

No comments:

Post a Comment