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Tobacco Harm Reduction
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- Taxes on vices are tempting but unreliable source of revenue.
- This is the paradox of sin taxes, the class of taxes that includes tobacco. These extra dollars and cents levied on products and activities considered detrimental to consumers—traditionally tobacco, alcohol, and gambling—are intended to accomplish two contradictory goals: Like all taxes, they generate revenue for the taxing entity, but they also aim to deter the behavior being taxed—which can ultimately negate the first goal.
- Research by The Pew Charitable Trusts and the Nelson A. Rockefeller Institute of Government found that overall, tobacco tax revenue declined in over half the states.
- In recent years, states have increasingly viewed sin taxes as budget fixes.
- Tobacco taxes also tend to affect particular segments of the population more. Although just 14 percent of those at or above the poverty line smoke, roughly 1 in 4 adults living below the poverty line does.
- With the growing appeal of e-cigarettes and legalized recreational marijuana, lawmakers are looking to both as a source of revenue to ease long-term budget challenges. Although both products offer fresh sources of funds, lawmakers would benefit from taking a cautious approach to them. Uncertainties, including long-term consumption trends and shifts in the black market, make returns difficult to forecast. As with tobacco, alcohol, and gambling taxes, new levies on marijuana and e-cigarettes may provide short-term revenue gains. Their ability to be sustainable long-term revenue sources capable of funding ongoing expenditures, however, is unclear.
- State regulations have already had significant effects on suppliers. In Pennsylvania, for example, more than 100 shops have closed since a tax—40 percent of wholesale value—went into effect in October 2016. Wide disparities in state tax rates probably incentivize smuggling and tax evasion; high tax rates could fuel a black market.