Budget & Tax

Will cigarette tax revenues go up in smoke?

February 21, 2018

Trent England

Headlines often give the game away when it comes to agenda-driven journalism. Such is the case with “Somebody says” headlines, where the “somebody” is invariably pushing a point of view shared by the reporter. And so both the Tulsa World and The Oklahoman recently provided: “Health care advocates say proposed tax 75-cent cigarette tax hike too low.”

The story is based on quotes from three lobbying groups, each demanding a $1.50-per-pack tax increase. This is in response to Oklahoma House Democrats joining Oklahoma’s Republican State Auditor supporting a tax increase plan that includes an increase of 75 cents per pack. It is a debate worth having, but all the newspapers offer is a few quotes without context or data. Agenda journalism adds nothing to the debate, and it’s boring.

An obvious follow-up question is whether these advocates want people to stop buying cigarettes or whether they want the revenue. They want to have their cake and eat it too. They mostly represent agencies or industries that will benefit from the revenue, but like to talk as if their goal is to tax cigarettes out of existence. Which is it?

And what about tribal smoke shops, where half of the taxes collected get rebated back to the tribe and, often, back to the smoke shop to subsidize the sale of cigarettes. Do the advocates support that policy? They probably do, since it puts powerful tribal interests on their side. But should a tobacco tax increase produce windfall revenues to tribal governments? And should tobacco taxes ever be used to subsidize cigarette purchases? These questions are impossible for an agenda-driven journalist to ask, even though they would turn the story into something worth reading.

Finally, what about people simply purchasing cigarettes out of state? Today, Oklahoma’s cigarette taxes are slightly lower than most of our surrounding states (see the map). A 75 cent increase would make taxes here higher than all the surrounding states, and a $1.50 increase would make them far higher than every state in our region.  One estimate suggests that fully half the cigarettes consumed in New York are smuggled in due to the state’s highest-in-the-nation cigarette taxes. Do we really know how much revenue would come from these tax increase proposals, since many consumers will change their behavior in order to avoid higher prices?

Showing disdain for smokers has become a way of virtue signaling, and so many people proclaim that any increase in cigarette taxes is fine by them. The problem is, raising taxes also raises expectations about future government revenues. The current debate could be put this way: Just how dependent do we want our schools to be on smoking? And without a real conversation about whether those revenues are likely to materialize, we may just find that they go up in smoke.