Tax Analysts Blog

Rand Paul Puts Chokehold on Cigarette Taxes -- He's Got a Point

Posted on Dec 9, 2014

On December 3, on national television, Sen. Rand Paul blamed politicians who pass cigarette tax laws for the death of Eric Garner, who died in a struggle with New York City police officers after he was arrested for selling loose cigarettes. The junior senator from the Bluegrass State (the number two tobacco-producing state in the U.S.) is not the first--nor will he be the last--conservative to make this argument. Of course, everybody has the right to complain about the problems caused by high taxes. But to blame New York tax policy for the tragedy in Staten Island is opportunistic overreach. We have taxes that are lawfully enacted. Unless you are living in some fairyland, tax laws must be backed up by law enforcement. In 1794 President George Washington himself led an army of 13,000 into western Pennsylvania to enforce a federal tax on whiskey. The debate about the death of a father of six selling cigarettes on the street should stay focused on police tactics -- about how and why New York City police used deadly force in this case -- not on the popularity of the laws being enforced.

There are, however, some good points to be made by conservatives while the national spotlight is shining on New York's cigarettes taxes. Let's take a step away from the impassioned headlines and half-baked sound bites and examine the policy and politics behind cigarette taxes. For years I have been swimming against the tide and arguing that cigarette taxes are too high. There are two reasons. First, as a practical matter, sky-high cigarette taxes ($5.85 a pack in New York City) are extremely difficult to enforce. The opportunities for arbitrage are irresistible. Multinationals earn profits in the United States and book them in tax havens. Smugglers buy cigarettes in Virginia (where the tax is 30 cents a pack) and sell them in Staten Island. The tax difference is more than $50 a carton. Whether it's corporate profits or cigarettes, stuff that moves easily over borders is hard to tax.

Second, and more importantly, high cigarette taxes are unfair. Government statistics show that smokers are generally less educated and poorer than the population as a whole. And because they smoke, they are likely to live less healthy and shorter lives than the general population. The onerous taxation of smokers is doling out extra pain to people who already have enough problems. Of course, there is some good from cigarettes taxes to the extent they discourage smoking. But there are still 42 million smokers in the United States. Nicotine is extremely addictive. These folks should elicit our compassion, not our contempt. And if we are going to fine them for their sins, the revenues should not inure to our benefit.

Now, about the politics. The unfairness of high cigarette taxes is a perfect issue for Republicans who are trying to make inroads with working-class voters. Unlike in the past, today Republicans are no longer minimizing the plight of the poor and the power of corporations. That’s because they know that if they ever want to win the White House again, they must directly address the economic insecurity of the vast majority of middle-income Americans whose paychecks have hardly grown in two decades. By endorsing the heavy taxation of cigarettes, Democrats play into the hands of Republicans who like to portray them as elitists who are out of touch with the struggles of regular people.

Read Comments (5)

emsig beobachterDec 8, 2014

Would high excise taxes on tobacco products & alcoholic beverages be considered
"fair" if a majority of adults use them? These excises would still be extremely
regressive. In fact, most consumption taxes are regressive.

In some respects, high excise taxes -- although not nearly as high as the NYC
tax on cigarettes -- are efficient taxes. If the demand is inelastic, taxation
does not change behavior drastically. In addition, if cigarettes are consumed
predominantly by lower income people; and, if consuming these products results
in adverse health outcomes; and if these consumers do not have the means to
pay for remedial care for their health problems, then, the high excise taxes on
these products may be thought of as proxy "user charges and fees,"

P.S. If I were a cigarette smuggler, I would support and vote for any candidate
that supports higher excise taxes on tobacco products. Unfortunately, my profit
potential for smuggling cigarettes in the Northeast Corridor is limited by the
high fuel taxes and tolls which are not used to maintain the roads.

edmund dantesDec 8, 2014

"We have taxes that are lawfully enacted. Unless you are living in some
fairyland, tax laws must be backed up by law enforcement."

Missing from your sentence is the word "sensible." How much tax was Eric
Garner evading? About 30 cents per cigarette. How many loosies had he sold
that day? Let's go nuts and say he sold 100, so he evaded $30 worth of taxes.
For this we send a squad of police? For this we actually arrest someone, take
them into custody, rather than simply issue a citation? For $30? Are you
kidding me? The paperwork alone would cost hundreds of dollars.

Why should selling loose cigarettes be a crime, anyway? I've assumed that
Garner was selling untaxed cigarettes, but perhaps they were fully taxed! News
reports don't say. Maybe he was providing a service, acting as retailer,
breaking down full packs for those who could no longer afford the price of a
full pack of high-tax cigarettes. That's a crime now, in Democratic New York
City?

What we have here are some very badly misplaced priorities. It's not
opportunistic overreach to point that out.

david brunoriDec 9, 2014

Dr. Sullivan,

Never have I agreed more with one of your opinions! If in fact, cigarette taxes
were closely tied to externalities, they would be defensible. But they are
merely a money grab from the poor and addicted. They are not unlike gambling or
other special ways we raise revenue.

emsig beobachterDec 9, 2014

David:

You are correct -- any tax rate on alcoholic beverages and tobacco products
that exceeds the general consumption tax rate and the tax needed to combat the
negative externalities is a "money grab." That being said, these excise taxes
would still be high; and, even the poor and addicted consume some public
services and should be required to fund their "fair" share of the cost of those
services. The "fair" share is determined our omniscient legislators and
government executives.

William DemeterSep 13, 2016

The taxes on cigarettes are unconstitutional because you cannot claim them on your taxes and 9 out of 10 people that smoke have what is called a nervous condition or severe depression by adding more taxes two cigarettes causes an increase in their condition and you only see this high taxes put on cigarettes not alcohol alcohol hasn't had a tax increase and some time that's because these people put in the taxes on cigarettes more than likely do not smoke but every one of them drink alcohol that's why they're not putting a tax this high on alcohol even though alcohol kills more people every day

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