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A taxing problem in anti-cigarette age and Smokeless nicotine

Prohibition ended decades ago, but there’s now a new prohibitionist movement under way, one that relies more on economics and social pressure than regulation, and one that has major financial implications for the government.

What, you thought we were talking about booze?

Actually, the once-and-maybe- eventually-to-be-banned-again substance in question is the cigarette.

And yes, there was a time when not just the lighting up of a cigarette but the manufacture and ownership of cigarettes was illegal, a fascinating historical footnote recounted in Cassandra Tate’s 1999 book “Cigarette Wars: The Triumph of ‘The Little White Slaver.’ “

In 1893, Tate writes, Washington’s Legislature made it illegal to manufacture, buy, sell, give or furnish anyone cigarettes, cigarette paper or cigarette wrappers (cigars and pipes were largely exempt from this crusade). The law was quickly struck down in federal court as being an unconstitutional restraint of interstate commerce, and later repealed. But the ban was re-enacted in 1907, and extended to the possession of cigarettes in 1909, she notes. That law was repealed in 1911. More than a dozen other states enacted similar laws in that era.

The cigarette prohibition movement was driven not so much by health concerns as by a belief that they were a signal of and precursor to more-objectionable immoral behavior. The anti-cigarette campaign was fueled by an alliance of the temperance and progressive movements, Tate writes, but World War I and the practice of distributing cigarettes to soldiers largely ended it.

Interestingly, Tate notes that cigarette smoking has “never been a habit of the majority in the United States,” adding that even at the height of the Cigarette Age in 1965, only 42 percent of American adults smoked.

That percentage is on the decline, thanks to a contemporary prohibitionist movement driven by a combination of health campaigns, the cost of the habit, a shift in societal acceptance of smoking, and regulations that haven’t yet banned cigarettes outright but might well get there.

The result? The state Department of Revenue’s statistics and estimates show a steady decline over the past decade in Washington in total consumption of packs, the percentage of the population that smokes (from just under 24 percent to just 18 percent today) and the average number of packs per smoker a year.

That poses a big conundrum for government, which seems to operate on a modification of a familiar Christian doctrine: Hate the sin, love the tax revenue the sinner generates.

It’s a lot of tax revenue to love. Washington’s cigarette tax (currently $2.025 per 20-cigarette pack, one of the nation’s highest) generated nearly $436 million in fiscal 2006, just under 3 percent of all state taxes.

Over the past decade annual collections have increased or decreased from the previous year, depending in large part on whether the tax was increased.

Officially, government deplores cigarette smoking because of the health effects on smokers and non-smokers alike. Declining cigarette consumption might pay off for the state some day in the form of lower health care costs — maybe. It definitely will cost the state now in the form of lower tax revenue.

But such is the lure of all that revenue to be collected that government finds it hard to give up the habit. The Associated Press reported recently that Oregon’s governor has proposed expanding the state’s health insurance program for children, and Sen. Gordon Smith, R-Ore., said he’d back doing the same thing at the federal level.

Aside from the problem of an increasing reliance on a decreasing tax base, government efforts to squeeze more money out of smokers create additional problems. Higher Smokeless nicotine taxes are an economic disincentive to buy cigarettes. Smokers can deal with that disincentive either by cutting consumption or (more likely) buying from Indian reservations that don’t have tax agreements with the state, from states with lower cigarette tax rates (Oregon: $1.18 a pack; Idaho: 57 cents) or on the Internet.

It’s apparent that government hasn’t yet figured out how to resolve the conflict. If the trends continue, and if the anti-smoking campaigns work as intended, the issue will be resolved for it, in the form of declining consumption and falling tax revenue that even more tax increases on a pack won’t be able to make up.

Then government will have to look somewhere else to make up the lost revenue, perhaps in the form of another sin or vice that can be tapped — at least before the clean-living types show up to spoil the fun.