Cigarette tax: Whoop-te-doo

So the House decided to increase the cigarette tax to about a third of the national average? Well, whoop-te-doo.

Of course, at least it’s something. And if you’re going to cut a tax with the money, the grocery tax is a far better choice than the income tax, because the former is actually comparatively high, while the latter is not. It also funds a youth smoking cessation program, so on the  whole it’s pretty decent legislation, certainly better than doing nothing.

There was a lot of fuss made about lawmakers not using all the money for Medicaid or some such. This did not bother me. As I’ve said before, I don’t really care what happens with that money, you could burn it and still accomplish the most significant goal that has motivated me to want to raise it all these years: Study after study has shown that if you raise the price per pack, fewer kids become nicotine addicts.

Anyway, Medicaid costs — just like the costs of those of us who are in private health insurance plans — are climbing so fast that even if you had devoted all the money to that, it would only cover one year’s increase in the expense. Then what do you do? The answer to rising Medicaid costs is the same as the rising private health care costs: We need to overhaul the entire system, and that is one of those few things that might have to be done on the federal, not the state, level.

For details on exactly what happened on this vote, I share with you this memo that my colleague Cindi Scoppe prepared for me. Enjoy:

On Wednesday, the House voted 78-37 to increase the cigarette tax by 30 cents and reduce the sales tax on groceries by 1.6 cents. (H 3567) The tax increase is projected to bring in about the same amount of money as the tax decrease, around $100 million.

There were actually two major questions concerning the cigarette tax: whether to increase it and, if it was to be increased, what ELSE to put in the bill.

The Ways and Means Committee bill increased the cigarette tax by 30 cents, reduced the sales tax on groceries by 1.5 cents, expanded Medicaid coverage, funded a youth smoking prevention program and paid for a couple of other programs. It was designed this way in order to satisfy two separate constituencies in the House: those who would only vote for a tax increase if it was offset by an equal or larger tax decrease, and those who wanted money from a cigarette tax increase to go to Medicaid and other health initiatives. The problem was that this meant the bill would have actually cost the state about $100 million.  To see the details of that package, go to the April 20 version of the bill and scroll down until you see the Fiscal Impact statement.

After initially sticking by this plan, the House eventually changed course and voted 64-52 to strip out nearly all of the spending and make the bill a straight swap: a higher cigarette tax for a lower sales tax on groceries. Here’s that vote, followed by the vote to pass the bill:

Voting to strip out the Medicaid spending:
Ballentine             Bannister              Barfield
Bedingfield            Bingham                Bowen
Brady                  Cato                   Chellis
Clemmons               Cooper                 Crawford
Delleney               Duncan                 Edge
Frye                   Gambrell               Gullick
Hagood                 Haley                  Hamilton
Hardwick               Harrell                Harrison
Herbkersman            Hinson                 Huggins
Kelly                  Kennedy                Kirsh
Leach                  Littlejohn             Loftis
Lowe                   Lucas                  Mahaffey
Merrill                Mulvaney               Perry
Pinson                 E. H. Pitts            M. A. Pitts
Sandifer               Scarborough            Shoopman
Simrill                Skelton                D. C. Smith
G. R. Smith            J. R. Smith            W. D. Smith
Spires                 Stewart                Talley
Taylor                 Thompson               Toole
Umphlett               Viers                  Walker
White                  Whitmire               Witherspoon

Voting to keep the Medicaid spending in the bill:
Agnew                  Alexander              Allen
Anderson               Anthony                Bales
Battle                 Bowers                 Branham
Brantley               Breeland               G. Brown
R. Brown               Ceips                  Clyburn
Cobb-Hunter            Coleman                Cotty
Dantzler               Davenport              Funderburk
Hart                   Harvin                 Hayes
Hiott                  Hodges                 Hosey
Howard                 Jefferson              Jennings
Knight                 Limehouse              Mack
McLeod                 Miller                 Mitchell
Moss                   J. H. Neal             J. M. Neal
Neilson                Ott                    Owens
Parks                  Rice                   Rutherford
Scott                  Sellers                G. M. Smith
Stavrinakis            Vick                   Weeks

The House passed the bill by a vote of 78-37:
Those who voted in the affirmative are:

Agnew                  Allen                  Anderson
Anthony                Bales                  Ballentine
Bannister              Bingham                Bowen
Bowers                 Brady                  Branham
Brantley               Breeland               Ceips
Chellis                Clemmons               Clyburn
Cobb-Hunter            Coleman                Cotty
Crawford               Dantzler               Delleney
Funderburk             Gambrell               Gullick
Hagood                 Hamilton               Hardwick
Harrell                Harrison               Harvin
Herbkersman            Hiott                  Hosey
Howard                 Huggins                Jefferson
Jennings               Kelly                  Knight
Limehouse              Littlejohn             Lucas
Mack                   Mahaffey               McLeod
Merrill                Miller                 Mitchell
Moss                   J. H. Neal             J. M. Neal
Ott                    Owens                  Parks
Perry                  Pinson                 E. H. Pitts
M. A. Pitts            Rice                   Rutherford
Sandifer               Scarborough            Simrill
Skelton                D. C. Smith            G. R. Smith
J. R. Smith            Stavrinakis            Stewart
Taylor                 Toole                  Vick
Walker                 Whipper                Whitmire


Those who voted in the negative are:

Alexander              Barfield               Battle
Bedingfield            G. Brown               R. Brown
Cato                   Cooper                 Davenport
Duncan                 Edge                   Frye
Haley                  Hart                   Hayes
Hinson                 Hodges                 Kennedy
Kirsh                  Leach                  Lowe
Mulvaney               Neilson                Scott
Sellers                Shoopman               G. M. Smith
W. D. Smith            Spires                 Talley
Thompson               Umphlett               Viers
Weeks                  White                  Witherspoon


29 thoughts on “Cigarette tax: Whoop-te-doo

  1. chris

    The only problem I have with the grocery tax is…won’t the price of groceries rise back to the same level as before? Why would a store that can sell milk for $4.00 per gallon (including tax) sell it for 3.80? It seems to me that after a few months all the “goody” will be gone…and where will the saving be then?
    This is not an issue I have thought much about…but my experience tells me that at the end of the day, grocery chains and middle men (not farmers) just got a raise…

  2. Brad Warthen

    I don’t know about that, but I do know that we raised our sales tax last year to please folks who lived in rapidly-appreciating homes — and the sales tax was already relatively high compared to the residential property tax.
    That change did a number of bad things, including shifting the property tax burden unfairly to businesses and folks who pay rent. But at least lowering the grocery tax would address some of that imbalance.

  3. Moderate Guy

    Businesses don’t pay taxes, or they will go out of business, because the tax rates are much higher than the net profit margin before taxes.
    Taxes are a cost to business, and they have to pass them on to the customers. The tobacco settlement a few years ago did that. The price of cigarettes went up about 58 cents a pack, all due to this settlement tax.
    We don’t have property taxes because they are fair or bear any relation to ability to pay. The government like property taxes because it means they own the property and the taxpayer has pay rent in the form of taxes, or have the property repossessed by the government. It is a relic of the slave era, when the economy was based entirely on agriculture, and slaves were taxed because they were a direct indication of ability to pay. The property tax was like an income tax on slave labor.

  4. Doug Ross

    What rationale do you use to justify increasing property taxes on homeowners who happen to have the good fortune of appreciation of value of their homes? Are those homeowners getting more services for the increased taxes? Your view of property taxes is bizarre. It’s not based on anything but “classism”… i.e. if you can afford a nicer house, you should pay more for the same services. How much are you paying in property tax? Enough? Too much?

  5. Mark Whittington

    The good news is that today it is possible to demonstrate how wealth will be distributed in society for a given tax structure. Only a few years ago this was impossible to do accurately because no one had developed the right paradigm and stochastic programming techniques to prove how wealth would be distributed. It turns out that capitalism has a severe statistical bias in favor of those with the most to begin with.
    Today, one can prove that in stable economy with no taxes whatsoever that the long term average distribution of wealth will be as follows:
    The top 1% will own 35% of the wealth.
    The top 5% will own 64% of the wealth.
    The top 10% will own 75% of the wealth.
    The top 20% will own 84% of the wealth.
    The bottom 60% will own 5% of the wealth.
    The bottom 40% will own 0% (rounded off figure) of the wealth.
    Amazingly, the US wealth distribution follows the above cited figures almost exactly which in turn leads one to conclude that net taxes in the US have no re-distributive effect. The capital investment and return process itself has a huge re-distributive effect however in that capitalism takes the wealth of an entire society and re-distributes it to a tiny minority.
    So, it is fair to use progressive taxes (i.e., to tax wealthy people more) because the system is so unfair to everyone else to begin with. Even with the progressive taxes that we currently have though, wealth inequality in the US is much higher than in Europe or Japan. Most European countries have wealth distributions (as the US used to have back in the sixties) where the top 1% owns about 20% of the wealth.
    Wealth inequality has skyrocketed in the US over the past few decades because so much the tax burden has fallen on the common people in the form of higher property, sales, and income taxes while simultaneously corporate, capital gains, and inheritance taxes have fallen precipitously.
    Additionally, free trade policies have undermined American worker’s bargaining power and have pretty much destroyed the manufacturing middle class that made America the great country that it once was.
    Consequently, we are now becoming a third world country with all the trappings of a banana republic (including a banana republic style wealth distribution).
    As a final note about taxes, let me add that taxes need to be used only for useful public services (not to modify people’s behavior), and that taxes need to be re-distributive in order for them to compensate for capitalism’s egregious unfairness. Otherwise, a plutocracy will surely follow. Look at what we have now.

  6. LexWolf

    “And if you’re going to cut a tax with the money, the grocery tax is a far better choice than the income tax, because the former is actually comparatively high, while the latter is not.”
    Just leave it to Brad to once again demonstrate that he has no conception of reality, especially in the area of taxes. Contrary to his wildly inaccurate assertion above, SC’s top income tax rate is already 11th-highest among the states with an income tax and, even worse, it kicks in at a low $12,850 taxable income (9th worst among the states). It clearly is a strong disincentive for people and businesses to come to SC and create more jobs for our people.
    In contrast our sales tax is right in the middle of the pack so the rational and correct choice clearly would have been to cut the income tax rates
    On a sidenote I’m glad to see that Kit Spires voted against this big-government boondoggle. Ken Clark, his predecessor and Brad’s fellow big-government ideologue, almost certainly would have voted for it.

  7. Randy E

    we are now becoming a third world country with all the trappings of a banana republic – Mark
    Does this mean we get those cool clothes at a discount?

  8. Randy E

    Lex, why don’t you move to another state seeing that you haven’t a positive thing to say about this state?

  9. LexWolf

    “Study after study has shown that if you raise the price per pack, fewer kids become nicotine addicts.”
    There’s another canard that never seems to go away (can you cite, oh say 5 of those studies?). In western Europe, cigarettes have cost $4 to $6 for at least 4 decades yet more Europeans, and yes more European and kids smoke than here and, yes again, more of them become nicotine addicts than here. It’s absolute hokum yet big-government ideologues continue to believe this claptrap.
    Here for example are last year’s cigarette prices in various European countries (the article is in French but the table is pretty self-explanatory even for non-French speakers). 1 Euro is about $1.36 so the 7.40 Euros in the UK (aka Royaume-Uni) is slightly over $10 a pack, the 4.50 Euros in Germany (aka Allemagne) is $6.12 and France charges $6.80. Even low-tax Luxembourg charges $3.94. Even after this tax hike, Marlboros in SC still should be available for $2.70 or so if you buy them by the carton and maybe $3.50 for single packs. Far less for cheaper brands.
    Yet the smoking rates for 11 to 15-year-olds in the US are already 4th lowest of 26 European countries, Canada and the US for boys, and 10th lowest for girls.
    Hate to break it to ya, Brad, but once again you’re all wrong in what you think you know.

  10. LexWolf

    why don’t you move to another state, seeing that you’re doing your dangdest to keep this state as backward as possible? I’m sure other states are more deserving of your “efforts”.
    BTW, do you have any disagreements with my statistics or are you just miffed that I pointed out that the emperor has no clothes? Or maybe you’re just engaging in the age-old leftist habit of stifling dissent?

  11. Mark Whittington

    You can bet that the machinists that were permanently laid off last fall don’t think that it is a laughing matter. You can also bet that with the loss of knowledge of these machinists and operators that the US no longer has the capability to make certain kinds of finely milled parts for tanks and APCs.
    Oh, but that’s OK, we can always buy the cheap after market stuff from China, Russia, and India. After all, it was the machinists’ lack of education that kept them from prospering. I’m being sarcastic, of course.

  12. ed

    The hypocrisy of The State newspaper on the issue of taxes knows no bounds. We get editorial after editorial from Brad and Cindi about how increasing the taxes on cigarettes will curb smoking among young people, and then in the next breath they tell us how it would be a good idea to use the additional tobacco tax revenues to offset some other portion of the sales tax structure. Now, if we are really trying to reduce the amount of an activity, does it make any sense to use tax revenues from that activity to reduce other taxes? In order for it to make any sense, it seems to me, you either have to assume that the activity is not really going to be curbed (in which case why bother?), or you use the initial increase in tobacco revenue to reduce the other tax all the while knowing that at some point tobacco taxes will taper off and the tax you reduced will have to be raised again (how cynical and two-faced!). Which is it Brad? This is exactly why using taxes as a blunt instrument to shape the behaviour of private citizens is a horrible, immoral practice. Ed

  13. Randy E

    I happen to LIKE it here Lex. I like the city, I like the people, overall I like how our state is run. Many people are moving into our state. Something is going right here.
    Yes, there are serious problems. It’s easy to bash everyone and everything while ANONYMOUSLY hiding behind a keyboard.
    I also like this blog and the job Brad does, even if I don’t always agree with him. Your continuous bashing of him and others raises questions about why you bother posting on here.

  14. Karen McLeod

    The nice thing about the cigarette tax is that no one has to pay it (don’t smoke, you don’t pay). I am all for a smoker’s right to be suicidal, but I don’t think he/she has the right to be homicidal, especially when the victim is me. Personally, I think they ought to use the cigarette tax to reduce smoking and help people quit. That way, the fewer who pay the tax, the less tax needed. I used to think tobacco growers needed some help to change products, but they’ve had that help, so I’m not concerned about them. We do need to reduce the grocery tax if possible. I can buy a less expensive house if necessary; those who have little or nothing can’t buy an alternative to food.

  15. chrisw

    Back to my original point, I don’t think a grocery tax will do anything to help the poor.
    My fellow and foolish GOP folk should have paid our debts (settled up the retirement accounts, unfunded liabiities, etc) with the extra money…but noooo…we in the GOP can waste your money just as quickly as the Dems can…

  16. ed

    Brad, admittedly I was on a rant. I’m finished hyperventilating, but my point stands. I didn’t “accuse” you of anything…I pointed out what is either your hypocrisy or your untruthfulness where tobacco taxes are concerned. You claim to want to reduce smoking (and I believe you really want to) and you regularly recommend to your readers that this can be accomplished by increasing the taxes collected on tobacco sales. Now, all that may be true as far as it goes…I happen to think that tax policy ought never be used for social engineering and interference in the lives of private citizens, but let’s assume that your tax increase would reduce smoking among teens or whatever other age group you’re targeting at the moment. Can you not see that if you then use the increased tobacco tax revenues to offset some other tax, or fund some other program, that you are either A) tacitly admitting going in that smoking is not really going to be reduced by the tax increase and you’ll actually have the money to fund your beloved big government program, (untruthfulness) or B) smoking is going to be reduced and the increase in revenues is going to disappear…meaning you’ll ultimately have to get it from somewhere else (hypocrisy with a side of untruthfulness thrown in for free). Social meddling using tax policy is immoral, and unsuccessful as often as not. If you believe that smoking is killing smokers and costing non-smokers a bundle, why not have the courage to do the right thing and advocate the outright ban of tobacco use? I think I remember that Cindi has essentially done this with fatty foods (maybe not, but I think…) Now, I don’t agree with a single syllable she has ever uttered, but if she has advocated that then at least she has the courage of her convictions from time to time. The dirty little secret of course is that lovers of big-government will NEVER advocate the outright ban of tobacco…it represents a cash cow. Ed

  17. Moderate Guy

    Top 5% of incoe earners paid 53.25% of all income taxes in 2001 (Down from 2000 figure: 56.47%).
    The top 10% pay 64.89% (Down from 2000 figure: 67.33%).
    The top 25% pay 82.9% (Down from 2000 figure: 84.01%).
    The top 50% pay 96.03% (Down from 2000 figure: 96.09%).
    The bottom 50%? They pay a paltry 3.97% of all income taxes. The top 1% is paying more than ten times the federal income taxes than the bottom 50%!
    And who earns what?
    The top 1% earns 17.53 (2000: 20.81%) of all income.
    The top 5% earns 31.99 (2000: 35.30%).
    The top 10% earns 43.11% (2000: 46.01%);
    the top 25% earns 65.23% (2000: 67.15%),
    the top 50% earns 86.19% (2000: 87.01%) of all the income.
    Here are the latest IRS figures for 2006:

  18. Mark Whittington

    Obviously, wealth is much more concentrated than is income. Yet, it is easy to surmise how wealth becomes concentrated over time when income follows an exponential distribution as your data suggests. Some years ago, Victor Yakovenko of the University of Maryland demonstrated that the lower part of the income distribution closely follows a Boltzmann-Gibbs distribution. I was interested in Yakovenko’s work because I realized that I had also generated the same distribution in my model economy when economic agents only made exchanges.
    That’s what my model economy does: it takes statistically equal entities with equal amounts of wealth and sets them in motion making investments, monetary exchanges, and receiving returns on investment. My programs also use an investment hierarchy. I was astounded when I first generated correct wealth distributions using this paradigm. Not only does it correctly describe the wealth distribution of individuals, but it also describes the market cap distribution of the stock market. Needless to say, market cap and individual wealth follow the same distribution. I made my first model economy in 2003. In 2005, I started working on it again and I found the name of the base distribution-the Woods Saxon potential. The log of wealth vs. the number of economic agents ranked in order of wealth from richest to poorest produces the Woods Saxon potential curve. Incidentally, the top economic agents tend to fall into wealth shells that closely follow nucleon shell structure!
    Be sure of this; big time wealth inequality is statistically built into capitalism.

  19. bill

    Wanna make some easy money? Rent a U-Haul,fill it up with cartons of cigarettes from SC and head to the Northeast.Everybody’s doing it.Afghanistan rules the Heroin trade.SC has the proud distinction of being the number 1 exporter of illegal cigarettes.

  20. Moderate Guy

    As long as the tax system is not being used as a social tool to redistribute wealth, warp the economic decisions of people, and the rates are low enough to not be a consequential factor in business decisions, no one needs to worry about such concepts as “wealth distribution”. A tax system which is as neutral as possible will contribute to greater opportunities and prosperity for the most number of people.

  21. Brad Warthen

    Ed, it never occurred to me to respond to Mark that way. Very funny. But Mark does try.
    I believe that, indeed, smoking would reduce among teens, although quite modestly, given the modest level of the increase. At the same time, it will bring in more revenue. It’s not such a bad idea to use some of that to offset the unwarranted recent increase to the sales, tax, if only on groceries. It’s not comprehensive tax reform, which is much preferable, but it does address an imbalance created by the ill-advised rollback of property tax (the owner-occupied residential property tax only, mind you) last year.
    Once again — we now have a relatively high sales tax. We do not have a relatively high income tax. So if you’re going to reduce a tax without comprehensive tax reform, make it the sales tax.

  22. LexWolf

    “Once again — we now have a relatively high sales tax.”
    Once again, we do NOT! We’re right in the middle.
    “We do not have a relatively high income tax.”
    Once again, we DO have a relatively high income tax! In fact, we ‘re 11th highest in the nation in tax rates and 9th worst for the rate at which they kick in.
    Did you even bother to read the links I provided above in my Apr 29, 2007 12:23:53 AM post?
    On smoking I also provided some very compelling links at Apr 29, 2007 1:00:35 AM, proving that higher taxes do NOT reduce smoking among kids or adults – if they did European countries would be waaay waaay below us. Obviously they aren’t yet you persist in your fantasies.
    I have no problem with you having your misguided opinions but you are not entitled to spout your made-up “facts”!!

  23. Moderate Guy

    The current price of a pack of cigarettes contains a 58 cent tax as part of the Tobacco Settlement, which is passed on from the cigarette manufacturers to the consumer.
    That money was supposed to have been set aside to pay for medical problems caused by smoking. Instead, the entire lump sum was obtained by selling the annual annuities to private investors in New York for about 60 cents on the dollar. All that money has been spent on other programs.
    The cigarette taxes are not about paying for medical care, anti-smoking education, or discouraging smoking. They are about maximizing tax revenue from a vice.

  24. coreg blood pressure

    I can’t be bothered with anything recently. I’ve pretty much been doing nothing to speak of. Not that it matters.


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