Smoking Isn’t Good for You but Neither Are Misguided Tax Policies
By Don Haggar
South Dakota House Speaker Mark Mickelson isn’t the first politician to say education is “the foundation upon which our citizens build their futures.” Or tout an “educated and trained workforce” as the “number one” tool for economic development. And he believes that post-secondary technical schools are an important component in building this workforce.
He’s right. Technical schools expand opportunity for thousands of students by teaching valuable skills that are essential to keeping our society running.
Unfortunately, Speaker Mickelson has come up with an ill-advised way to bring down the cost of tuition at these schools. He’s pushing a ballot initiative that would increase cigarette taxes by $1.00 per pack to fund a multipurpose slush fund for technical post-secondary technical institutes in the state.
Reducing the number of South Dakotans who partake in a habit that kills 480,000 Americans every year and, increasing the number of people who can attend technical schools and pursue opportunity seems like a win-win, right?
Not so fast.
For starters, smokers today tend to be lower income or even at or below the poverty line. Cigarette taxes unfairly squeeze many who are already struggling just to get by.
Of course, if they can’t afford the unhealthy habit, quitting is the best option.
But for a lot of smokers, it isn’t so simple. If it were, they would have already kicked the pricey vice. And here again, income level matters. Studies show that the more educated and affluent who have better access to support and cessation aids like patches and gum have a much higher quitting success rate.
Even if South Dakota smokers do quit, for this ballot measure, that would be a problem.
The proposal promises up to $20 million in financial support for technical schools. But what happens when people stop buying cigarettes and the required tax revenue dries up? It’s happened before. In New York, cigarette taxes are so high they exceed the base cost of a pack of smokes. Yet, the Empire State’s revenue from cigarette taxes fell $400 million from 2010 to 2015. In Illinois, four years after a 2012 cigarette tax increase revenues were $419 million below projections.
It’s risky and irresponsible to fund a worthwhile cause with a revenue source that’s sure to diminish over time.
And the negative consequences don’t end there. The tax also threatens small businesses, especially those that are close to state borders.
Significantly lower cigarette prices in our neighboring states will lure South Dakotans across the line to buy cigarettes—and likely fill up on gas or purchase groceries while they’re at it. When Wisconsin twice raised tobacco taxes between 2007 and 2009, border stores suffered a significant drop in tobacco sales, one claiming they were down by as much as 40 percent. Meanwhile, across the border in neighboring Illinois, where lawmakers had yet to enact higher cigarette taxes, one store owner estimated a 35 to 40 percent boost in cigarette sales.
Nationwide, this border state price disparity has given rise to substantial criminal activity. The Mackinac Center for Public Policy notes, “few politicians realize when they vote for higher excise taxes that doing so may dramatically increase cigarette-related crime such as smuggling.” And their study shows that in New York, which boasts the country’s highest cigarette taxes and the highest cigarette smuggling rate, smokers “consume more smuggled cigarettes than they do legally taxed ones.”
We can all agree that smoking isn’t good for you. But neither are the side effects of misguided tax policies. South Dakota lawmakers should find another way to fund technical education and South Dakotans should think twice before signing a petition that would put this tax hike on the ballot.