In an effort to boost state revenue while
simultaneously reducing tobacco consumption, Gov. Jennifer Granholm
has proposed incorporating a cigarette tax hike into the annual
budget. The governor’s proposal would raise the tax to $2 per
pack — a 75-cent increase over current levels. Granholm
claims that this plan, which would make Michigan cigarette taxes
the second-highest in the nation, will generate $295 million of
additional revenue while concurrently ending the habits of 60,000
smokers. Despite such unlikely promises, increasing the tax on
cigarettes places an unfair burden on the lower classes, while
providing little in the way of a public health benefit.
As Granholm attempts to pull the state out of a $200 million
budget deficit, the political impetus behind the proposed tax hike
is not difficult to identify. In any context, sin taxes are
politically fool proof; if the tax fails to bring in enough
revenue, it can be construed as a victory for public health, and if
it falls short of its aims of reducing smoking, it can be hailed as
successful in its fiscal objectives.
But in economic terms, cigarettes — like gasoline,
electricity and other daily necessities — are all goods with
inflexible demand. In other words, unlike most products for which
demand will diminish as price increases, the demand for these
necessities remains static, regardless of the price of the product.
The highly addictive nature of nicotine ensures that buyers have
nowhere to go but the local store to satisfy their addiction.
Before assessing the credibility of Granholm’s public health
objectives, it is important to take into account that nicotine has
been found to be proportionally more addicting than both cocaine
and heroin. Thus, Granholm’s public health claims are highly
questionable, given that an additional 75 cents is unlikely to
dissuade 60,000 addicts to quit.
Furthermore, because many smokers are often in low-income
brackets and the tax does not vary according to income, these
cigarette taxes are inherently regressive. The state is effectively
funneling a disproportionate amount of money from underprivileged
consumers into the treasury. While a tax placed on an addictive
good that people will pay a high price for is very likely to fill
the state’s coffers, it does so by placing an unfair economic
burden on lower-income individuals. Surely retracting some of the
millions of dollars in income tax relief that have flowed from
Lansing over the past couple years would be a more fair and
effective way of handling the budget crisis. Because Granholm is in
a fiscal jam that only raising taxes can fix, she should take care
of it the old-fashioned way, not punish people for their personal,
and in many cases involuntary, choices.