Tax ’em if you got ’em

by John Seiler | December 3, 2013 5:12 pm

[1]California is inhaling another pack of attempts to increase cigarette taxes. Joe Mathews enthuses about it on Fox and Hounds[2]:

This state needs to raise tobacco taxes. For a state as properly focused on health as California, the fact that we have unusually low such taxes is downright weird. We should be well above the national average in our level of taxation.

According to the Tax Foundation[3], our state cig tax of 87 cents is 32nd highest among the states. The highest is New York State at $4.35. As you might expect, cig taxes generally are lower in the Southeast tobacco states, highest in the Puritanical states in the Northeast, such as New York, and their offshoots in in the West, such as Washington at $3.05.

Strangely, Washington just legalized marijuana[4]. It reminds me of the hippies who used to introduce the movies shown evenings in the auditoriums at the University of Michigan when I matriculated there 40 years ago. They would smirk, “During the movie, no smoking” — pause — “cigarettes.” Then when the lights went down half the audience (although not yours truly) would light up joints.

No wonder America didn’t survive us Baby Boomers.

Tobacco vs. wacky tobacky

And here’s something interesting. In 1996 Proposition 215[5], which legalized medical marijuana, passed in hippy San Francisco with 78 percent of the vote, but lost in reactionary Sutter County, getting just 39 percent. Sutter is so uptight it even banned alcohol in the 1890s[6], way before national Prohibition in the 1920s.

Now look at Proposition 29[7], the cigarette tax increase on the June 2012 ballot that barely lost. SF: 74 percent yes; Sutter County: 35 percent yes. That’s just about the opposite of Prop. 215. So in Frisco, when you give up the coffin nails and get withdrawal shakes, you just start toking. Whereas in Sutter, you’re an Okie from Muskogee and “don’t smoke marijuana” but inhale tobacco like the Marlboro Man.

And here’s something interesting. Orange County generally is considered to be a reactionary place. Not surprisingly, just 42 percent favored the Prop. 29 cig tax increase, especially with the Orange County Register editorial page (on which I still freelance) coming out strong against it.

But you might not expect that O.C. also backed Prop. 215, with 52 percent voting yea. Some of that also must have come from the Register, where longtime senior editorial writer Alan Bock wrote many editorials backing 215, and wrote a book on the medical marijuana movement, “Waiting to Inhale[8]” (a play on the 1995 movie, “Waiting to Exhale[9]“; alas, Alan died in 2011; great guy).

So at least in this comparison, Orange County really does live up to its libertarian reputation, preferring to let people choose what poison they light up with, while SF comes off as a place of hippy hypocrites.

Black markets

Back to the tobacco tax…

What Mathews didn’t even hint at is that bans and high taxes ignite black markets. That obviously is the case with marijuana, where it remains illegal. But it’s also true with cigarettes. I did a lot of research on this in the mid-1990s when Canada boosted cigarette taxes. The evidence showed that a vast black market caught fire once a pack cost $7 Canadian.

Adjusting for inflation and currency exchanges, that would be about $9 in U.S. dollars today. Currently, a pack of cigs in California costs about $7 in grocery stores, including all taxes; a couple bucks less in tobacco stores. So if the current initiative proposal[10] of boosting taxes $2 a pack is passed, a pack would cost $9 at grocery stores, right on the edge of what caused widespread bootlegging in the Great White North.

The Chronicle reported on Nov. 9[11]:

According to a study released last month by an affiliate group of the California Chamber of Commerce[12], a $2 increase would double smuggling rates in the state to almost 40 percent of cigarettes consumed.

The group, California Foundation for Commerce[13] and Education, estimated that the Bay Area alone would lose $4.7 million in local sales tax revenue and 2,900 retail jobs if cigarette smuggling increased.

Proponents of the tax dismiss the warnings as propaganda.

“These are the same lies as before that never came true,” said Mike Roth[14], a spokesman for the cigarette tax ballot proposal, which was submitted last month and is pending in the attorney general’s office. If approved, the measure would need 504,000 signatures to qualify for the 2014 ballot. Roth said the proposal would fund new cancer research and discourage current and future smokers from the habit.

Smuggling

Lies? I remember when the cig tax was increased a mere 25 cents back in 1988 with Proposition 99[15]. A local liquor store here in Huntington Beach was knocked off the next day. The owner hired a firm to put iron bars on his front door, over the mere glass door that had been there before. I asked what happened. “They broke in through the door and stole all the cigarettes,” he said. I asked about the expensive liquor. “No, they left that. It’s too heavy. They just grabbed armfuls of cartons and took them.”

And here’s what’s going on in the New York anti-cigarette utopia. The New York Post reported[16]:

The jailed head of a multi-million dollar cigarette smuggling ring and one of his top lieutenants plotted from behind bars at Rikers Island to kill witnesses they believed were cooperating with law enforcement officials, authorities said.

But when ringleader Basel Ramadan placed a phone call to hire a contract killer he was really talking to an undercover NYPD detective.

Attorney General Eric Schneiderman and Police Commissioner Ray Kelly announced the new indictment of Ramadan and Yousseff Odeh on Thursday.

They were among 16 Palestinian men charged in May with running a massive smuggling ring that flooded New York City and the Albany regions with millions of cartons of unstamped cigarettes. Officials said the ring had direct ties to Mideast terrorists and some of their profits may have been funneled to Hamas and Hezbollah.

According to state Sen. Tony Avella,[17] D-Queens, “The fact that 60 percent of all cigarettes sold in New York were smuggled in from other states, that’s unbelievable. It’s incredible.”

If California’s smoke taxes go up $2 a pack, to $3.87, it’ll be happening here too. An whereas Big Apple contraband cigs come from Indian reservations and Virginia, California’s will come from Mexico. If the government can’t stop cocaine and people from slipping into California illegally, how will it stop packs of smokes?

Source URL: https://calwatchdog.com/2013/12/03/tax-em-if-you-got-em/

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