October 14th, 2006

Brad @ Burning Man

A Grumbling "Yes" on MO Amendment 3, Too

Another proposition that Missourians will be voting on come November 7th is the "Tobacco Tax 2006-25" amendment, which will be on the ballot as Missouri Constitutional Amendment 3. Again, you can find the ballot language and the full text of the proposed amendment on the Missouri secretary of state's web page, but the summary is that it adds 80¢ per pack to the cigarette tax and increases the tax on all other tobacco products by 20% of retail price, supposedly to fund health care.

Everything that the amendment's defenders say about it is a lie. Everything that the opponents, mostly gas station owners, has to say about it is true. Putting tax legislation into the state constitution is a bad habit that Missouri really should get out of. I can even think of at least one good reason to oppose it that nobody's even mentioned yet. But I'm still going to vote for it, and if you can stomach it, I recommend that you do, too.

Here's the deal. This is the second time around for this proposal, we went through this back in 2004, too. What the people who are selling this idea are saying is let's tax the holy heck out of tobacco for several reasons. For one thing, they say that raising the price of tobacco makes it less likely that kids will smoke, and gives people financial incentives to quit. This turns out to not even vaguely be true; in no state has raising tobacco taxes resulted in fewer smokers. The one way that raising taxes could reduce the number of smokers, as California and Florida's experiments showed, would be if the money went into a really well designed anti-smoking campaign. The ballot language suggests that this will happen with this tax ... but that language includes a hefty escape clause. It doesn't actually require that any of that money be spent on anti-smoking campaigns, it just says that anti-smoking campaigns are one of the things that it can be spent on. Once the state is dependent on smokers' taxes, trust me, it won't be, which is why both California and Florida shut down their highly successful anti-smoking campaigns.

For another reason to vote for it, they say that tobacco smokers impose costs on the rest of us by driving up health care costs, so it's fair to tax them to make them pay the costs they impose on the state. Which sounds good, but the fact of the matter is that the best available data suggests that overall, tobacco's effect to the state on healthcare costs is pretty negligible; yeah, smokers get sick, but they also die younger and more quickly so the end of their life costs less. Most of the healthcare costs imposed by smoking are picked up by private insurance, not the state, and this tax money isn't going to be spent to make insurance more affordable. More importantly, there is nothing in this legislation that says that the state has to spend more on healthcare if this tax passes. That was the sticking point with voters last time. They remembered that when we passed the state lottery and legalized gambling, we were promised that the taxes on the casinos and the state's share of the lottery would go to education. And they did. But the amount being spent on education didn't go up; instead, the legislature transfered the money that was going to education to other things. So Missourians refuse to be fooled twice by taxes "earmarked" for something that the state is already paying for. All that this second attempt adds to increase Missourians confidence is a provision calling for mandatory audits to show that the money got spent where it was supposed to go, but it says nothing about stopping the legislature from reallocating any existing funds. That part of it's a scam, and the opponents of the amendment are telling the truth when they say so.

The ballot language says that the tax will raise an estimated $351 million to $499 million in new taxes. What it doesn't say, though, is that it will almost certainly result in reduced tax income in another area, and that relates to what I said about the lie that higher cigarette prices reduce smoking. Experience in high-tax states has shown that when you raise cigarette taxes high enough, smokers don't quit; instead, they change to cheaper brands. Instead of smoking Marlboros they switch to discount brands that don't do any brand advertising and pass the savings along to you, or to foreign import brands made in countries that pay their people a couple of cents per hour. Well, guess what? Those discount brands and import brands didn't sign off on the famous "tobacco settlement." So if by raising taxes on Big Tobacco we shift consumer preference to Little Tobacco, we'll lose in tobacco settlement money an awfully big chunk of what we raise in taxes.

Oh, and voting for Amendment 3 almost certainly means higher gasoline prices, too, and I'm surprised that nobody has mentioned this. You see, if you analyze gas station sales not in terms of gross dollar sales per category but in terms of net revenue per category, they're not really gas stations. They're cigarette stores that almost give away gasoline as an incentive to buy your cigarettes there. Gas stations are so squeezed by competition, by depressed lower and middle class wages limiting what customers can afford to pay for gasoline, and by increasing re-monopolization among gasoline refiners, that your average gas station makes maybe one or two pennies per gallon of gas sold. But they don't mind, because the profit margins for them on cigarettes are huge, and a lot of the people who stop for gas also pick up a pack or two of smokes while they're there. A $30 gas purchase with $20 worth of cigarettes probably earned the store 15¢ on the gas and $8 on the cigs. Squeeze the profits on the cigarettes by pushing consumers towards cheaper brands, and you put gas stations in the tough situation of either having to increase their profit margin on gasoline or going out of business. And even the ones that go out of business will be raising your gas prices, because of lower competition. So a vote for Missouri Amendment 3 is probably a vote for higher gasoline prices.

I'm going to vote for it anyway, and I recommend that you do so too. But I won't think less of you if you don't, because of all the good reasons not to do so that I just gave you. (I will think less of you if your reason for doing so is an automatic 100% knee-jerk "taxes are bad!" reflex. But really, is there anybody left reading this journal who is that kind of Neanderthal?) So if it's got all of those things wrong with it, why do I support it? Two reasons:

First of all, while it won't raise a net increase of anywhere near $499 million, it will raise money, and the state needs it, period. In case you failed to notice, the state is so overextended that even though it's an election year and even though it cost us in federal matching funds to do so, the state legislature and the governor just had to knock tens of thousands of people off of Medicare. There's nothing in Amendment 3 that forces the state to use that money to restore Medicare funding, but it's pretty likely that a good chunk of it will do so. What's more, contrary to the false impression that many of you have, not all of the rest will be stolen. Missouri has never yet been able to raise enough money to implement the school funding formula, or to finish building the roads that we promised our farmers so they can get produce to market; the state just plain needs any money it can get, and this is a tax that's on the ballot. I'd rather see a hike in the state's top income tax rate than a tax as regressive as the one on cigarettes, but at least the cigarette tax is semi-voluntary, like the gambling tax and the lottery. I'll take what I can get.

Secondly, while it won't reduce the number of smokers any time soon, it may reduce the number of smokers in the long term. Those discount and import cigarette companies that stand to benefit from this are also the firms that spend the least on advertising and promotions. They're not plastering cigarette logos all over everything that can have one, creating iconic fictional characters, or handing out cigarettes and branded merchandise in coffee houses and bars and dance clubs. The tobacco companies wouldn't be doing these things if they didn't think that they increased the number of smokers, so I'm willing to hope that if enough states squeeze the big tobacco companies to the edge of extinction, it'll help reduce demand for cigarettes. It won't eliminate it, of course. As the lead character's boss put it in Thank You for Smoking, the product is "cool, available, and addictive; it almost sells itself." As long as holding out an unlit cigarette or bumming a light is a way for a teenage girl to introduce herself to a good-looking guy without seeming desperate, as long as a guy can offer a girl a cigarette or a light without seeming stalkerish or rude or intrusive, and as long as smoking remains a great way for people in their teens and twenties to shave several inches of fat off of their waistlines, and all it costs them is the equivalent of a second car payment and a few years off of their old age, people are going to smoke. But making it harder for big tobacco to afford lavish advertising budgets is worth trying.
Brad @ Burning Man

Quick Question: Dr. Strangelove, Sunday night at Tiv?

I'm busier than a one-armed paper hanger this weekend, and don't have time to write anything much detailed before I run out the door again, but a quick question for my St. Louis friends that I forgot to ask earlier:

The Tivoli's midnight feature this weekend is a comedy that I love but have never gotten to see on the big screen, Dr. Strangelove: Or, How I Learned to Stop Worrying and Love the Bomb. I'm planning on seeing the 10pm showing Sunday night. I'm also planning on seeing the 10pm showing next Sunday night of Repo Man, another very funny movie that I've never gotten to seen on the big screen. Anybody interested in joining me for either show?