RALEIGH – A new hospital at the University of North Carolina at Chapel Hill is still under construction but is already running $20 million over its $180 million budget. Someone’s got to pay – and it should be smokers.
That’s according to powerful Sen. Tony Rand (D-Cumberland), who has filed a bill to increase North Carolina’s 35-cents-per-pack cigarette tax another five cents and earmark some of the proceeds to cover the UNC-Chapel Hill cost overrun. House Majority Leader Hugh Holliman (D-Davidson) has introduced a companion bill in his chamber.
Meanwhile, the Triangle Business Journal reports in its April 27 edition that collections from the previous tax increase on cigarettes are running slightly above projections. State officials expect the total cigarette-tax take to be as much as $245 million for the 2006-07 fiscal year, vs. a $238 million projection. However, they also continue to predict that the revenue stream will start to lessen in the coming years as smokers cut back or quit and fewer young people than before take up the habit.
As previously observed, the previous hike in the cigarette tax was politically understandable but hard to justify in a free society devoted to personal responsibility and to rational, equitable means of raising government revenue. Any tax applied to a retail good will skew somewhat regressive, because the mix of personal consumption tends to shift from goods to services as you go up the income scale. With tobacco use, the effect is far more pronounced because the propensity to smoke is inversely correlated with wealth and income (in part, by the way, because smokers have a shorter lifespan).
Tax regressivity is unfair and inefficient. So is so-called progressivity, which increases tax proportions as you go up the income scale and reflects either noxious old crypto-Marxist claptrap about class exploitation or the more recent Keynesian claptrap about the economic superiority of spending over saving (its adherents seem to believe that the savings of households with rising incomes are stuffed in their mattresses rather than invested in capital goods through banks and securities markets). The proper goal, at least for the tax system as a whole, is proportionality – if your standard of living is twice as much as mine, we assume that you benefit roughly twice as much from the existence of (sound) government and ought to pay roughly twice as much in taxes.
Continued – or, Rand and Holliman have their way, enhanced – reliance on excise taxes to pay for state services is a wrongheaded and perilous policy. It’s wrongheaded because such taxes are regressive and fail to apportion the cost of government services over the broadest extent of the population, which weakens governmental accountability (as in the case of forcing smokers to pay more to cover a cost overrun at UNC-Chapel Hill). It’s perilous because excise taxes are unlikely to keep up with population and income growth over time, contributing to long-term imbalances between projected revenue and what politicians will want to spend.
North Carolina should have a tax system subject to less of a boom-and-bust cycle. The system should rely on broadly applied, efficiently levied taxes for most expenses. And it should not try to use taxes to control people’s behavior, no matter how inadvisable or self-destructive we might believe it to be.
Hood is president of the John Locke Foundation.