When Will California Wise Up and Learn from the Tax Mistakes of Others?
According to Fox and Hounds, a California watchdog site that monitors business and politics in the Golden State, the California Senate fast tracked SB 768, a bill that would raise taxes on a pack of cigarettes by a whopping $2.00 per pack; a 230% increase over the current $0.87 per pack. Did I mention the bill includes automatic tax increases down the road, too?
Why is this a bad idea? Because nothing the bill’s sponsors want to accomplish will happen. Meanwhile, other bad things will. California legislators need only look at other states for proof.
Fox and Hounds notes that the move will increase crime. They cite the Mackinac Center which reports:
We find that New York currently holds the top position as the highest net importer of smuggled cigarettes in 2011, with smuggled cigarettes totaling a staggering 60.9 percent of the total market. Not coincidentally, New York also has the nation’s highest state cigarette tax at $4.35 per pack, plus another $1.50 levied in New York City.
Even worse, such smuggling helps to finance global terrorism.
Beyond crime, jobs will be lost. Fox and Hounds continues:
… job loss … goes hand in hand with the smuggling issue. Fewer cigarettes sold at stores will undercut the income especially of the many convenient stores around the state, putting jobs in jeopardy. According to the National Association of Convenience Stores, cigarette and other tobacco product sales account for more than 36 percent of all in-store sales at convenience stores nationwide.
Finally, it won’t do what California desperately needs it to do; increase revenues. Just the opposite, in fact. While it should be obvious from the smuggling equation above, let’s look at some real world results, shall we? In July 2007, Tennessee had its own 200% tax increase on cigarettes; from $0.20 per pack to $0.62 per pack.
For the state’s fiscal years 2004, 2005, 2006 and 2007 there was no specific breakdown in public statements regarding the revenue generated by tobacco tax collection. Obviously, though, cigarettes were sold and taxes collected.
What did analysts and lawmakers think would happen when they instituted the tax increase? Clearly they anticipated revenues would rise and rise a lot. They needed to fund $200M in education expenses.
The increase went into effect on 7/1/07. The state began its new fiscal year on 8/1/07. For the first time I could find, the state included a dedicated line item on tobacco tax collections in their performance press releases.
Tobacco tax collections for the month were under collected by $14.1 million, but still $6.8 million above tobacco tax collections for August 2006. [emphasis added]
One hopes for growth from year to year. August 2007?s revenue was better than August 2006?s by a respectable $6.8M. But that was still $14.1M less than projections. The state assumed a $21M increase in a single month! The same year-to-year growth and projection shortfall happened in September. After that the Department simply stopped reporting year-to-year collection comparisons. Their cash cow had been butchered.
The complete first year ended July 31, 2008 with a total shortfall of $71.4M! July of 2009 they were short $25.8M. July 2010 brought some hope. They beat projections by $1.2M. Come 2011 it was back to shortages; $7.7M worth. In 2012 they were $18.5M short and through May, 2013 with 10 months gone in the fiscal year, they are $8.6M short.
Over $130M short in just 6 years. And what about those Education expenses? We funded ongoing, increasing expenses with a shrinking revenue source. Clearly not the legislature’s most shining moment.
The first year, it got so bad so fast that that to try and stop the hemorrhaging the state Department of Revenue specifically targeted Tennesseans travelling to neighboring states to buy cheaper cigarettes. They faced fines, jail and confiscation of their vehicles.
This all happened while Democrats were in charge of Tennessee. Similarly, California “enjoys” Democrat super-majorities in their state legislature. So, even though taxpayers there have voted down exactly this sort of tax – twice – in the last 10 years – here it is again. It’s been tabled for now but Kevin De Leon, the Democrat chair of Senate Appropriations, promises to bring it up again – presumably as soon as possible, just because he can. This is one of the leading Democrat politicians in the state. Which isn’t saying much.
This is where California is headed. I haven’t the first idea why they think they’ll be the exception. I usually hope that California emulates Tennessee. Wouldn’t you just know that the first time they try they pick perhaps the worst thing we’ve done in a decade …
Cross Posted from Blue Collar Muse.