If history is any lesson, it will not be the state of Pennsylvania.
As has been reported, the state of Pennsylvania increased its cigarette tax by a dollar a pack, making it the tenth highest tax among the states. In Philadelphia, when local tax is figured in, it is the third highest city trailing only Chicago and New York City. The obvious goal is to increase revenue for the government along with the (hopeful) added benefit of making people less reliable on cigarettes and decrease consumption.
If experience is any indicator, someone will be putting more money in their pocket; but it won’t be the tax collector.
States and cities that have raised their cigarette tax to the top of the rung have generally been disappointed with the results. Tax receipts never measured up to expectations and it wasn’t because people all a sudden stopped smoking. The buying public went to an alternative market and who usually profits from such an arrangement should give legislators pause before raising taxes on such “sin’ products.
About a decade or so ago, NYC hiked up its cigarette tax to where a pack of cigarettes went for fifteen dollars a pack. Revenue receipts did not fall in line with expectations and the reason was simple, a black market filled the void. Why spend fifteen, when the guy on the corner is offering the same product for five? And therein lays the problem when government tries to balance its books on people’s habits, people look for and find alternate solutions. So who is pocketing this extra coin? As one should expect, it is not the most savory of characters.
Of course, the traditional mob has its fingers in the pie. For the longest time they have made a buck on government get rich schemes. Just look at the government run lottery system. Pennsylvania along with all the other states runs a daily number. Hit it and win five hundred dollars. Place that same dollar bet with your local bookie and get six hundred. Same dollar but a better return, so where do you think most logical people will place that dollar? It is the same with cigarettes. I have “x” number of dollars to spend on smoking, do I use it to buy one package or two to three times that amount? To most people, it’s simple economics.
When revenue falls short of expectations, government will then tout that less people are smoking, so it is a good thing even though the budget shortfall will have to be filled by other means or another tax increase on cigarettes. Don’t believe it, smokers went to a different supplier, one who does not pay taxes; and to combat this underground economy (while publically pretending it does not exist or is not that large an issue), our leaders put the police into the fray to staunch the flow of dollars. Unfortunately, such decisions frequently lead to conflict between the police and the public. Do you remember why the police engaged Eric Garner?
Not only does organized crime and low level free-lance criminals profit from these tax hikes but so do terrorists. Cigarette smuggling has long been a staple source of income for them. A van and a trip to Virginia or the Carolinas – low cigarette tax states – will do. Within about a month, a well run operation can see profits in the tens if not hundreds of thousands of dollars. Enough to fund an attack on the scale of 9/11 (estimates of the cost of the 9/11 attacks is in the range of half a million dollars).
When government resorts to gimmicks to plug budget shortfalls such as dramatically increasing taxes on cigarettes, alcohol and other “sin” products be on guard as these taxes rarely produce the promised income to fix the budgetary mess. Other measures will need to be employed to get the extra funds such as doubling down on the cigarette tax, which again will fall short. It creates a vicious cycle that is not easy to escape. What these tax increases do is create an underground economy and all the social mayhem that goes along with it – disorder, crime and even terrorism.
Harrisburg, here is an idea – try and live within your means before you create havoc by your irresponsible tax hikes.