Raising taxes in California these days is extraordinarily difficult. In fact, in their effort to eliminate a $24-billion budget shortfall, the state's politicians are discussing dismantling California's main welfare program, eliminating the health insurance program for poor children and decimating education without any apparent debate on raising the income or sales tax.
One of the few state taxes that politicians have talked about raising is the tobacco tax. California's is currently set at 87 cents a pack (and hasn't been raised in a decade); this year, the Legislature will consider raising it to $2.97 a pack, which would bring the cost of a pack of cigarettes to more than $7.00. Sponsors of the bill estimate that the tax hike would raise about $2 billion.
How does the tobacco tax work? Who does it help and who does it harm? Below, some questions and answers to help frame the debate.
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What's the chief argument for hiking the tobacco tax?
That it's a good tax. Business taxes have negative consequences: They drive companies and jobs out of the region. High income taxes make the state a less desirable place to live. Sales taxes can stifle commerce.
But tobacco taxes are different. They raise revenues and simultaneously serve the public good by reducing smoking, at least in theory. That's not insignificant in a state where about 13.3% of residents smoke, where there are more than 30,000 smoking-related deaths each year, and annual smoking-related costs are estimated at more than $15 billion.
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Can raising taxes really change behavior?
Yes. The tobacco tax is based on one of the most fundamental rules of microeconomics -- the law of demand -- which says that all else being equal, the more you raise the price of a product, the more demand for it will drop. Conversely, if you reduce the price, more people will buy, use or, in this case, smoke the product.
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Taxing tobacco in order to discourage its use is a pretty clever idea. Who came up with it? Milton Friedman? Paul Krugman?
Actually, it goes back a bit further.
When Columbus first brought tobacco back from the New World, rulers were not quite sure what to do. In the 16th century, Murad IV, the sultan of Turkey, decided that tobacco was offensive, and he tried to control it the old-fashioned way, by declaring its sale or use punishable by death.
