While corporate accounting scandals are grabbing headlines, we need to remember who actually perfected the concept of cooking the books: state and federal governments. Their seemingly limitless lust for revenue makes their corporate brethren look like a bunch of choir boys.
All levels of government have been known, on occasion, to engage in “creative accounting” in calculating deficits or surpluses, the Social Security trust fund, or basic deficit spending.
Most often, we associate this practice with Washington, but this year’s rampant state budget deficits have caused state legislator to elbow their federal colleagues aside in the dash for cash. Where can they go to get more money to pay for these bothersome deficits?
To cigarettes, of course, the golden goose of government.
State and federal governments have a virtual monopoly on the profits from the sale of cigarettes. They make more money on each pack of cigarettes sold than anyone in the business — including the manufacturers.
And not by just a little bit, but by a long shot. In 2001, the government made $1.54 on each pack of cigarettes sold, more than 15 times the dime R. J. Reynolds Tobacco Co. made on each pack. Of the average national price for cigarettes last year, $3.28, governments took 47 percent directly to their coffers.
From 1999-2001, they collected more than $88 billion in taxes and state settlement payments. That’s about $80 million a day. But apparently, $88 billion isn’t enough. This year 18 states and New York City have increased cigarette excise taxes, netting them an additional $3.2 billion. It’s the new math of tax policy: Forget soaking the rich, let’s tax the politically incorrect. Just give the plaintiffs’ lawyers and politicians a little time and the Mac Tax is next.
New York City, thanks to an 1,800 percent increase in the city’s cigarette tax this year, now boasts that it is home to the $7.50 pack of cigarettes. To place that in context, to raise the revenue the city generates from the sale of just one carton of cigarettes, New Yorkers would have to buy395 six-packs of beer, 801 bottles of wine, or 24 fifths of liquor. Is this a fair and equitable tax policy, even for so-called “sin” taxes?
And guess who pays the vast majority of the tab? Fifty-eight percent of adult smokers have annual incomes of $35,000 or less. The national average household income is $42,000. The government is “tax profiling” — singling out people least capable of paying and taxing them at usury rates.
This immeasurable level of hypocrisy has bred a rather tortured series of arguments in favor of increasing cigarette taxes. “It’s a voluntary tax,” says the politician. If you don’t want to pay the tax, quit smoking, and everyone will benefit. Were these the same politicians who have characterized smoking as addictive — some saying as addictive as heroin?
Applying the same “voluntary tax” standard, should state legislatures ratchet up taxes on junk food, luxury lattes, gas-guzzling SUVs, alcohol, or movie tickets for violent or graphic films? And why can’t taxpayers apply the same rationale to paying state income taxes? After all, working is “voluntary,” too.
“It’ll keep our kids from smoking,” says the politician. But according to the government’s own numbers, only one-half of one percent of cigarettes sold at retail or in vending machines are consumed by children.
How about enforcing the laws already on the books in all 50 states that make it illegal to sell cigarettes to minors? Or adopting laws such as those for alcohol, which make it illegal for a minor to purchase or possess cigarettes?
“We’ll spend the extra money on tobacco control,” says the politician. According to the national Centers for Disease Control, only six states met minimum guidelines for tobacco-control spending in 2000. Instead, cigarette revenues are buying irrigation systems for golf courses, horse breeding farms, salmon fishery recovery projects, farm equipment, and run-of-the-mill pet projects such as roads and bridges.
“We don’t want prohibition,” says the politician. Of course not. With billions of dollars hanging in the balance, prohibition would be politically, and fiscally, unpalatable.
Perhaps the government doesn’t recognize its own reliance on tobacco-generated revenue. Maybe smoke got in their eyes.
Tommy J. Payne is the executive vice president for external relations of R.J. Reynolds Tobacco Co.