Cigarette tax measure may have unintended consequences
On the surface, this November's Ballot Measure 44 is simplicity itself. The measure will increase taxes on cigarettes by 30 cents per pack, as well as on other tobacco products, and the revenue raised will be dedicated to the Oregon Health Plan and tobacco use reduction programs. What could be more straightforward?
However, the measure raises a host of interesting issues that voters should weigh prior to casting their votes. Most important, of course, is the core of the measure, its purpose: to raise money for the Oregon Health Plan, ostensibly to offset costs the plan incurs from smoking-related ...view middle of the document...
Naturally, some of these decreases in usage are attributable to social conditions, and most Oregonians wouldn't see decreased cigarette smoking as cause for great lament. The percentage of the population that is smoking has declined significantly over the years, and will likely continue to do so regardless of the state's tax policy. However, a 4.5 percent decrease in cigarette usage after the 79 percent tax increase contained in Measure 44 may seem optimistic given history's teachings.
If there is a dramatic decrease in cigarette smoking, such as has happened every other time cigarette taxes have been raised, the Oregon Health Plan can expect to continue to face a fiscal shortage.
A second factor that may affect the state's ability to collect its expected revenues has to do with the smoking public's willingness to avoid paying the tax. At what point does the tax become so onerous that smokers will go to great lengths to avoid paying? There are certainly examples where tax increases on cigarettes led to the development of a "black market" in smuggled, lower tax or untaxed cigarettes.
For Oregon, what happened in Nevada in recent years is particularly instructive. The last time Nevada raised cigarette taxes, the amount of new revenue was slight. However, it was not because people reduced their smoking in response to the tax. Rather, in Nevada, Native American reservations and other tribal lands sell untaxed cigarettes at tribal stores. OTR's sister organization, the Nevada Taxpayers Association, performed a study that showed that the cigarette tax increase did not decrease smoking, but instead drove smokers onto tribal lands to buy their cigarettes. It was a windfall for the tribes, but not for the state of Nevada.
Currently, the Oregon tribes OTR has been able to buy already-taxed cigarettes for sale on their tribal lands and at Oregon's numerous Native American gaming casinos. Native Americans are not subject to either federal or state excise taxes, although they may voluntarily pay them.
One has to wonder at what point Oregon's tribes might consider that buying untaxed cigarettes to sell to gambling tourists, with the opportunity to make up to 68 cents per pack profit on the tax portion alone, is simply too good a deal to pass up. Perhaps that point does not exist.
Finally, there is the issue of the regressive nature of all sales taxes, such as the cigarette excise tax. Studies show that those with lower incomes are more likely to be smokers. They are also less able to afford increased taxes on their purchases. For example, a person with a two-pack-per-day habit who earns the minimum wage will have to spend more than a full week's take-home pay just to pay Measure 44's tax increase.
It is interesting, however, to have a tax that will be paid, perhaps disproportionately, by low-income Oregonians dedicated to a program that serves low-income Oregonians. At the federal level in recent years, it is the wealthy who have been paying about...