March 06, 2007

South Carolina: "Cockamamie Reasoning" on Cigarette Tax

The Greenville News' Paul Hyde wants to see a cigarette tax hike in South Carolina-- and wants to see it fail:
Some opponents of a cigarette tax — here in South Carolina, for instance — have argued, lamely, that the cigarette tax shouldn’t be increased because the state would come to rely on a tax revenue source that’s bound to decline...The obvious response to that argument is: So what if the tax declines? It’s undoubtedly a good thing that fewer people would be smoking.
States also may see a decline in some health-care costs related to smoking. So the decline in cigarette tax revenues would not matter that much. Based on the experience of other states, South Carolina could expect cigarette tax revenues to decline. State leaders could plan accordingly.The decline in revenues would be slow and cigarette taxes represent only a small portion of the state budget.
Hyde is right about one thing: forward-thinking lawmakers ought to be able to see the long-term decline of cig tax revenues coming. Lawmakers who've got their eye on the long-term sustainability of South Carolina's fiscal structure should recognize that the cig tax is a quick fix that will need to be supplemented in the long run-- useful to help achieve the dual purpose of discouraging teen smoking and bringing in a few bucks in the short run, but not a long-term solution.

This is all true-- and if state lawmakers are really thinking in terms of a two-part strategy (cig tax now, structural tax reform later on), then it's not the worst idea ever. But how many lawmakers in South Carolina (or in any other state) are that forward-thinking? Most observers of state tax politics would probably agree that state lawmakers aren't thinking ten years down the road-- they're thinking about how they can get through the current fiscal year while ruffling the fewest feathers. They'll absolutely take the cigarette tax revenues if they can get them now, but won't use this short-term fix as a springboard for longer-term reform.

If Hyde overestimates the willingness of lawmakers to think long term, he completely ignores the question of popular support for tax hikes. Even in the best of times, there is a limited appetite for tax hikes-- lawmakers only get so many chances to reform the system, and if elected officials use their political capital to push through a cigarette tax hike this year, it will be that much harder for them to enact needed structural tax hikes next year or the year after. In year 2 or year 3 after a cig tax hike, lawmakers will have to explain to voters that the first tax hike they enacted wasn't enough, and that they have to do another one.

This is the sort of thing that breeds anti-tax sentiment, and it's the main reason why lawmakers should think long-term, not short-term, when dealing with tax increases. They may only get one bite at the apple.

It's nice to see that Hyde is confident in the political will and long-term vision of South Carolina lawmakers and voters. Here's hoping he's right on both counts.


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