Yesterday, the Twin Cities’ Star Tribune ran an opinion piece by Tom Weaver, CEO of Achieve Services Inc., in which he advocated for a proposed $1.50-per-pack tobacco tax increase in Minnesota.
The tax would be levied to end the government shutdown in the state. Estimates from the Minnesota Department of Revenue claim the tax would raise almost $400 million in revenue over the next two years, and Weaver notes the increase is projected to lead 28,100 Minnesota adults to quit smoking. Weaver serves on the board of ClearWay Minnesota, a nonprofit dedicated to reducing tobacco use that says the tax could prevent as many as 41,000 Minnesota youths from becoming future smokers.
But these estimates only illustrate what most of us already know: The tax base for tobacco is small, and it’s getting smaller. This is a big reason why Minnesota will likely never see all of the estimated $400 million in revenue if the tax deters smokers as much as supporters say. In other words, they can’t have their cake and eat it, too.
In a sense, Weaver is right to believe that the tax “should not be looked upon as just another way to raise new revenue.” Unfortunately, the alternate reasoning he provides is just as flawed. Weaver notes that “proceeds from a tobacco tax increase could be used to offset other taxes that provide disincentives to economic growth… or that stress lower-income households.”
This statement is pregnant with irony. Not only do tobacco taxes themselves stunt economic growth by discouraging commerce in the state, but one of the biggest problems with excise taxes in general is the disproportionate burden they place on the poor.
To add further to the irony, Minnesota Gov. Mark Dayton, who Weaver applauded for including a tobacco tax increase in a recent proposal, was credited with stating the following during the Minnesota gubernatorial elections less than a year ago:
“You raise the price of a pack of cigarettes $1.50… that’s money out of the pockets of working people and poorer people, and that means kids don’t have as much to eat or don’t have the same quality of food. Those are addictions, and I think you treat addictions as addictions and you don’t penalize the people who are dealing with them economically.” (September 13, 2010)
I couldn’t agree more.
Finally, the Twin Cities Daily Planet ran a story this week condemning the suggested issuance of “tobacco bonds,” a measure that would entail selling future settlement payments from tobacco companies to private investors in exchange for capital in the immediate. Alas, this plan is just another gimmick, and at its core is little more than additional borrowing. Plus, the state would ultimately lose revenue through interest payments, and the scheme would only be a short-term fix with implications of long-term future tax hikes.
It is clear that the antidote lies in reigning in spending, not detrimental tax hikes. If Minnesota chooses to put a Band-aid on their budget hole in the form of tax increases- whether sales, tobacco, or otherwise- then the state is sure to see another shutdown in the not-so-distant future.