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GUEST COMMENTARY:
Excise excess
By Walker Merryman
Politicians too often find the prospect of raising
revenue by taxing a minority of the population
tempting . But is it fair to base tax policy on the
"tyranny of the majority" ? Should taxes be discrimi-
natory? Should they fall hardest on those least able
to bear the burden? Should taxes be used to
promote the goals of select groups or regulate
personal behavior?
In the case of cigarette excise taxes, each
answer has been yes.
Most smokers probably don't realize how much
they pay in tax for each pack or carton of cigarettes .
But as a percentage of price, taxes are formidable .
A bout one-third of the pre-tax retail price of a pack
of cigarettes is tax . If other products carried the
same tax burden as cigarettes, a car costing $11,000
would be priced at nearly $15,000, and a $450 stereo
would go for $600.
The federal government alone collects 16 cents
in excise tax for each pack of cigarettes sold in the
U .S. Every state applies its own excise, ranging from
two to 26 cents a pack . Many states also have sales
taxes that add another two to eight cents to the price
of each pack . And 370 cities and counties top off the
state and federal taxes by levying their o w n excises.
The result? In Florida, taxes at all levels of govern-
ment make up a full 73 percent of the pre-tax
average retail price.
This year tobacco-tax collections will hit $10
billion . That money will be spent for services that
benefit all citizens - smokers and nonsmokers alike .
Smokers will pay to erect government buildings
where smoking is prohibited! A gain, faced with
politically unpopular and , in some cases , illegal
budget deficits , governments w ill try to balance
their budgets on the backs of smokers .
But raising cigarette taxes sometimes has
unexpected and unfair side effects . When the
federal excise doubled from eight to 16 cents a pack
in 1983, revenue collections fell 30 percent short of
projected figures . State governments have had
similar experiences when their excises have risen.
In some cases, planned projects have had to be cur-
tailed drastically or even eliminated because
revenues were less than expected .
Following the federal excise increase, national
cigarette sales dropped more t han five percent .
When a state, city , or county hikes its cigarette tax,
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residents often travel to nearby areas where the tax
rate is lower. This casual bootlegging is a well-
documented problem , for example, in Massachu-
setts . A traveler sees rows of convenience stores
along the New Hampshire border with parking lots
filled with cars bearing Massachusetts license
plates .
Besides contributing more than 14 percent of
total profits for convenience stores, tobacco pro-
ducts are key traffic builders . So a retailer in a state
with higher taxes than its neighbor not only loses
business on cigarettes , but profits on impulse
purchases as well.
Not only do excessive excises cut away at busi-
ness , they hit hardest those least able to pay -
people on fixed incomes , the poor, and the elderly .
The regressive nature of excises is evident when
you consider that a family with two average smokers
having an income of $8,000 a year pays a three-
times-larger share of its income in cigarette taxes
than a similar family earning $25,000 annually .
Some politicians rationalize higher tobacco
taxes by claiming that society benefits . People
shouldn 't smoke, they maintain , so higher pri ces
may discourage people from starting or continuing .
This social engineering prompted one newspaper
columnist to note, " While I am tolerant of strange
theories , I am not enthusiastic about paying for the
prejudices of zealots ."
The idea of a "sin tax " is an old one, but not a
sound one . In a free society , adults should have the
right to make their own decisions about lawful
behaviors such as smoking without political
coercion .
Raising cigarette excise taxes to balance
government budgets is a short-sighted solution to
an extremely complex problem . Government
spending needs to be realistically matched against
government revenue .
A more equitable, though difficult, remedy is to
take a hard look at existing programs and stream-
lining , or even eliminating , unnecessary projects .
These decisions may be politically unpopular, but
they are more financially responsible . Excessive
excises are not the answer.
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[Editor 's note: Walker Merryman is a vice president
of the Tobacco Institute. )
PlAY METER. December 1. 1985