Thursday, February 28, 2013

UW-L professor questions effectiveness of 'sin taxes'




Erik Daily
Laci Wolter, manager at Holy Smokes on Rose Street, arranges liquor bottles on a shelf at the store. Despite promises from politicians that "sin taxes", like those on booze and cigarettes, can prevent use and offer a new pool of money for health programs, that's not necessarily true, said Adam Hoffer, assistant professor of economics for UW-L.


February 26, 2013 12:00 am • By PATRICK B. ANDERSON | panderson@lacrossetribune.com





Adam Hoffer knows people who question so-called sin taxes can be stigmatized as “crazy radicals that don’t know what they’re talking about.”

But taxing booze, cigarettes and soft drinks isn’t always a great idea, says the assistant professor of economics at the University of Wisconsin-La Crosse.

Hoffer co-wrote a column this month for U.S. News and World Report that raises doubts about the effectiveness of taxing tobacco and alcohol.

Such taxes heap more costs on low-income families without significantly deterring unhealthy behavior, Hoffer said.

Most of the money raised doesn’t go to health or prevention programs. Instead, Hoffer said, it gets lost in the shuffle of public funding.

“The policy makers in Madison have an idea of how much they want to spend on health care, regardless,” Hoffer said.

However, members of a Wisconsin anti-tobacco group say higher cigarette taxes have, in fact, curbed smoking, and they’re pushing for a similar increase for all tobacco products.

In the past six years, Wisconsin’s cigarette tax more than tripled, from 77 cents a pack to $2.52. Combine that with $1.01 for the federal government, and taxes account for well over half the retail price.

Politically safe ground

Hoffer started studying cigarette taxes as part of his doctoral dissertation at West Virginia University. His column points out a growing trend of lawmakers taxing unhealthy behaviors — expanding excise taxes to products such as candy and soft drinks.

Politicians look to sin taxes as a safe way to raise money without upsetting voters, Hoffer said. “You will see pitch forks and torches if some states try to increase their income tax or their sales tax.”

Taxing sin paints a rosier picture, he said: Hike the price on cigarettes to deter smokers, then funnel the money into health care and tobacco-prevention programs.

The problem is that sin taxes don’t always work as promised, Hoffer said. Nationally, about 20 cents of every dollar raised in cigarette taxes goes to the earmarked purposes.

Wisconsin’s cigarette tax goes into the state’s general fund, along with all excise taxes. Taxing cigarettes raised $587.8 million alone for the state in 2012. Less than 1 percent of tobacco taxes are spent on prevention programs.

“Lawmakers don’t want to label sources of money,” said Todd Berry, president of the Wisconsin Taxpayers’ Alliance.

‘An arms race’

Money the state raised from the cigarette tax jumped by about $93 million when lawmakers last raised the rate in 2009, but three years later it had dropped by about $56.5 million. Cigarette sales are on a steady decline.

“Especially among youth,” said Laura Smith, a spokeswoman for Health First Wisconsin. “It’s definitely one of the most effective ways to lower smoking rates.”

The share of high school students who smoke dropped from 20.7 percent in 2008 to 13.1 percent in 2012, according to the Wisconsin Youth Tobacco Survey.

Health First is asking state lawmakers to tax other tobacco products like cigarettes, hoping higher taxes will lead to a similar drop. The group tried unsuccessfully to have Gov. Scott Walker include the measure in his 2013-15 budget proposal, and is asking other state lawmakers for help.

Rep. Chris Danou, D-Trempealeau, said he would support such a plan. Tobacco companies roll out cigarette alternatives, and, because taxes are lower on the new products, people make the switch, Danou said.

“It’s an arms race,” Danou said.

Not a deterrent

Cigarette taxes may be a steady source of government revenue, but Berry said there’s little financial benefit in raising taxes on other vices.

For instance, the state raised about $9.2 million in 2012 from the excise tax on beer. Wisconsin taxes brewers and importers about 6.5 cents per gallon on beer sold in the state.

Even doubling that would pale compared to the $11 billion from income and sales taxes, Berry said.

“There’s not a lot of money in beer, wine and liquor,” Berry said.

That hasn’t stopped lawmakers in other states from taxing a whole new category of unhealthy products, including candy and soft drinks.

The soft drink industry spent $57 million on lobbying efforts in 2009, and “there’s a small army being raised to fight the 32-ounce soft drink ban in New York City,” Hoffer said.

Despite claims otherwise, most people paying sin taxes are not easily deterred by higher prices, Hoffer said.

“Whenever their price goes up, people hardly change their consumption whatsoever,” Hoffer said.

Higher taxes correlate to falling cigarette sales in Wisconsin, but the drop didn’t happen in a vacuum. There’s the 2010 law that prohibited smoking in bars and restaurants, and there’s also out-of-state competition. The cigarette tax is lower per pack in Minnesota, Iowa and Illinois.

Meanwhile, Hoffer argues that increasing excise taxes disproportionately affects low-income residents, who are more likely to smoke and more likely to be overweight or obese.

“We’re taking away from the people’s ability to spend more on healthy food,” he said.


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