A lot of interesting stuff has happened since the late 1940s. But one of the most interesting and frightening is the growing disparity in wealth. Middle class people are moving into the lower classes faster than anyone in the '50s would have suspected, and wealth is concentrating in the hands of a privileged few.Most social scientists agree that this trend contributes to increasing crime and a lower standard of living for everybody - and believe its reversal should be a priority. Lower income people are generally less educated, less healthy and tend to use drugs disproportionately, contributing to escalating problems in our society. As more of us join their ranks (partially through tweaks like this to the tax structure), these problems will escalate.
Nicotine is a prime example - the lower your income, the more likely you are to be a smoker. Even if lower-income people smoked the same amount as higher-income people, their tobacco tax expenditures would comprise a greater portion of their income. But they don't.
"It's doubly regressive," says UAA Economics Professor Steve Jackstadt, "It represents a larger share of poorer people's income, and more poor people smoke." According to Jackstadt, the tax could also hurt local business, and create crime by creating a smuggling industry on the military bases.
That's why it's so disturbing that the Alaska State Long Range Financial Planning Commission has proposed a 345% increase in tobacco taxes, from $.29 to $1.29 per pack at the urging of the Coalition to Protect Kids From Tobacco, a group of organizations including the Cancer Society, Heart and Lung Associations and the Native Health Board.
Interested parties should read the report entitled "The Estimated Revenue Effects of a Proposed $1 per Package Increase in the Cigarette Tax Rate in Alaska," prepared for the Alaska Cabaret, Hotel, Restaurant and Retail Association by Barents Group LLC of KPMG Peat Marwick, Washington, D.C., dated 12-11-95.
The report found that the regressive nature of the tobacco tax would deprive the poorest Anchorage smokers (those making $10,000/yr.) of up to 10% of their annual income, while those making $25,000 contribute less than 2%. Those making more see a negligible impact. The aggregate effects, given more poor smokers, only exacerbate these numbers.
Reducing smoking and raising revenue are important, but widening the growing income disparity is downright dangerous.
The report also examined cigarette sales on military bases in other states following implementation of similar tobacco tax increases. California's (10 cents to 35 cents) military bases sold 18% more cigarettes the following year, a trend which continued through 1994, and reversed a trend of consistent decline in on-base cigarette sales since 1974. Michigan (25 cents to 75 cents) experienced even more extreme results - cigarette sales on their two military bases went up 53% the following year.
- "It's doubly regressive," says UAA Economics Professor Steve Jackstadt, "It represents a larger share of poorer people's income, and more poor people smoke."
Suddenly, we see an increase in crime in addition to a worsening of poverty. Our tax (29 cents to $1.29) will be the largest in the nation, and is certain to demonstrate these effects to a larger degree. Can this possibly be good public policy?
Perhaps worst of all, the report found that the Long-Range Financial Planning Commission made some serious errors in figuring their numbers. Of course, everyone juggles the numbers, but it appears the Commission left out some crucial factors, grossly overestimating projected $42 million/yr. revenues by 29% in '96 and 146% by 2,000, according to the report. The Commission forgot to take inflation into account, ignored a long trend in declining cigarette sales, and used a demand elasticity far lower than what the report writers found in the peer-reviewed professional journals. Demand elasticity describes how responsive consumers are to a change in price.
And that's just it. People do smoke less when taxes are raised, especially kids, which are currently the only group of smokers on the rise. Jenny Murray, Lung Health Specialist for the American Lung Association, feels the tax is the best public policy measure to reduce the amount of smoking. Alaska has the third highest smoking rate in the nation, which most people agree poses a serious public health problem, resulting in an economic drain on society. Though Jackstadt made some fascinating arguments about why smokers actually save us money, I'll place my bet firmly in the 'smoking is bad' corner.
"The tobacco tax is regressive," says Murray, "there's no way to get around the argument." But, when you take into account the reduction in smoking, especially children, she believes it's worth it. "We assume that with a 10% increase in price, kids reduce their purchases by 10% and adults by 4%." How this relates to the proposed 345% increase in the tax is anybody's guess, but it's a good bet kids' greater demand elasticity will show up in the numbers.
The group recently conducted a survey to determine support for the issue. 55% of smokers and 74% of residents supported the tax increase. That was probably before they knew how disastrous the negative side affects could be.
We don't need more crime in Mountain View or on the military bases. And we shouldn't deprive the poorest among us of a disproportionately large portion of their income because of an addiction they may not be able to control. If you want to raise revenue, raise property taxes. If you want people to stop smoking, remove the pressure of poverty and continue the education effort. We're just not in a position to afford the reduction in smoking that this regressive tax offers.