On August 28, Elon Law professor Andrew Haile evaluated recent changes to the tax code in North Carolina as a special guest on WUNC radio's "The State of Things." The appearance followed Haile's August 12 interview with the hour-long radio program, "Where We Live," broadcast by WNPR-Connecticut Public Radio, providing historical and national context for Connecticut's debate to increase taxes on tobacco sales.
Asked in the WUNC interview about the conflict of interest that arises when states rely increasingly on revenue from cigarette taxes, Haile said, “A lot of states, North Carolina included, are now relatively dependent upon the continued receipt of cigarette tax revenues, sin tax revenues, and so that puts them in the position where their interests are aligned with the sellers of these products to ensure continued sales, and that creates maybe an ethical conflict of interest. What we see in North Carolina, for example, is that we get about 400 million dollars per year in cigarette related revenues. We only spend about two to three percent of that in smoking prevention and cessation programs. I’m not sure if legislators are saying consciously, ‘I’m not going to fund those programs,’ but that’s the result.”
Haile, an expert in tax law whose latest research article in progress is titled, “Sin Taxes: When the State Becomes the Sinner,” discussed the recent history of tobacco related revenues for state governments in a WNPR radio interview earlier in the month, noting a limited use of those revenues by some states for their originally intended purposes.
“Back in 1998, the states settled with the tobacco companies and receive slightly less than $8 billion dollars a year now through that settlement,” Haile said. “Connecticut gets about $115 million dollars per year through that settlement and gets about $330 million through its general tobacco taxes. Part of the reason for that settlement was to offset the costs the states had incurred, the health costs from the use of tobacco, but what we have found is that the money is not being used primarily for those purposes. Connecticut, in fact, ranked last, last year, in its use of those funds for tobacco prevention and control. It spent about $8 million out of $440 million total that it received from tobacco revenues on prevention and control.”
Click on the E-Cast links to the right of this article to hear the complete WUNC and WNPR interviews with Haile.
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Responding to a request to detail the advantages and disadvantages of sin taxes more broadly, Haile commented first on what are seen as the benefits of such taxes, saying, “They have effectively raised revenue. All told the states get about $24 billion dollars a year in tobacco taxes, so that is adding a significant amount of money to state budgets, particularly at a time when they are struggling.”
“Those who argue in favor of sin taxes,” Haile continued, “say there are costs associated with the use of these products, health costs in particular, and so you are placing the burden of those costs on the people who elect to use the product, rather than spreading them across society as a whole, for example through Medicare or Medicaid.”
“One of the positives of the tax is that it may decrease usage particularly among some of the more vulnerable groups like youth,” Haile noted. “What we see is that for every 10% increase in price for cigarettes, we see about a 3 to 5% decline in consumption, but for youth that is about a 7% decline, so that does have a positive health effect. These taxes are more politically feasible than other taxes as well. Many states have had referenda where voters have in fact voted for increases in these taxes.”
Detailing the disadvantages of sin taxes, Haile said, “They are regressive in nature and so we know from CDC studies that the majority of smokers come from households making less than $35,000 a year, so instead of taxing those individuals who are … I believe that the proposal in Connecticut was making $500,000 or more a year, you are putting more burden on lower earners. This is not the latte crowd who is paying the cigarette tax primarily.”
“The other argument that opponents make is, what is next?” Haile said. “If you are going to tax cigarettes and alcohol, are you going to extend it to other products, and there has been a discussion of a soda tax or taxes on fatty foods.”