Cigarettes: Government's tax cure-all

During the last budget debate in Madison we were told that raising the cigarette tax $1.00 per pack would help solve the budget deficit. It seems that once again, Governor Doyle has found the silver bullet of taxes for this year's crisis: another $0.75 increase in the cigarette tax- which would make the state tax a whopping $2.52 per pack.

What has always amused me about the logic of "sin" taxes - whether it is smoking, drinking or any other legal activity - is that the arguments for them are so self-defeating. Those in favor of the tax increase usually make two arguments: 1) the tax increase will pay for health care costs or other costs related to the activity; and 2) the tax will make the cost the activity so high that people will no longer do it.

That means that if the new tax increase succeeds in its objectives, there will be no increase in revenue because fewer people will actually be buying cigarettes. To be sure, the smokers I know are resourceful enough to find ways around the state tax buying buying online or crossing state lines.

Still, here we are on the eve of Governor Doyle's budget address and once again we get the same argument that the cigarette tax just isn't high enough. And the goal is still the same: The new 75-cent increase in Wisconsin's tax would be part of an attempt to raise money to pay for health care and smoking cessation programs and make the price of smoking so high it forces smokers to quit and stops children and teens from starting to smoke.

At the same time Governor Doyle is advocating for a new tax increase, there is a new report out from the Legislative Fiscal Bureau that has a very interesting line about the effectiveness of cigarette taxes. In explaining the reasons for the drop in tax revenues this year, the report begins with this:
On January 29, 2009, this office released tax collection estimates for 2008-09 and the 2009-11 biennium. Those estimates were modified on February 11 because of a reduction in estimated cigarette and tobacco products taxes due to an increase in federal taxes on those products.
So, if I'm reading this right, part of the budget deficit is caused by an increase in the cigarette tax. But the Governor still wants the increase and is betting on the increased revenues in the budget. I guess this explains part of the reason we are in the mess we are in.