Friday, May 2, 2014

New Jersey's Cigarette Addiction

One element of the public health war on cigarette smoking, a worthy effort, was to make cigarettes more expensive.  The idea was that smokers would be discouraged from buying cigarettes as the price increased.

Governments were happy to help out.  They raised the cost of cigarettes by taxing them heavily.  Today, the federal tax on a pack of cigarettes is $1.01.  The New Jersey tax is $2.70, the sixth highest rate in the country.

When these taxes were first proposed, the thought was that the revenues could be used to discourage smoking and to help smokers quit.  It never really worked out that way, unfortunately.

In 2012, the most recent reporting year I could find, cigarette taxes contributed more than $733 million to the New Jersey budget, or a little less than $1,000 from each smoker with a pack-a-day habit. Cigarettes are also subject to the state's seven-percent sales tax.

Cigarette taxes didn't start out at the current rate, but the New Jersey legislature, like many others, just kept bumping them up, always for the good of smokers.

In 1997, for instance, New Jersey doubled its per-pack tax to 80 cents, the highest in the nation.  The idea, legislators said, was a virtuous one -- to encourage people to quit smoking.  A side benefit was raising $205 million annually for indigent health care and school construction.   The bill was very popular because nonsmokers, a majority of the population, got the new programs for free.

Cigarettes also brought money into the state from the national $206 billion settlement worked out with tobacco companies in 1998.

New Jersey's portion of the settlement was to be $250 million annually until 2025.

That cash flow was irresistible to state lawmakers when New Jersey had financial problems a few years later. In 2002 the state sold bonds to be repaid by most of the proceeds from the tobacco settlement.  This netted about $2 billion, which plugged the hole in the state's operating budget for just one year.

This year the state budget is again under challenge.  One action being planned is to sell bonds for what is left of the tobacco settlement money, a bit less than $400 million.  This will raise $91.6 million dollars for the current year's shortfall.

In addition, Governor Chris Christie is proposing another tax increase on "tobacco."  His plan is to tax e-cigarettes at the same rate as the regular ones.  (No matter that e-cigarettes seem to help smokers break the habit of inhaling smoke and destroying their lungs.)  He says this will raise $40 million a year for programs to help people who are addicted to narcotics.  He has offered no reason why smokers of e-cigarettes should bear all the burden for addiction treatment.

In 2002, when the state sold the settlement bonds, there were pledges to spend $40 million annually for smoking cessation programs.  That dropped to $30 million in 2003 and kept dropping until 2011, when just $1.5 million was allocated to help smokers quit.

Since then, New Jersey has spent no money on such programs.  The American Lung Association now gives the state "F" grades for tobacco prevention and smoking cessation efforts.

When you think about it, this is quite rational.

Cigarette taxes bring the state more than $700 million a year (and would have brought in $250 million more if politicians had kept their hands out of the cookie jar).  If people stop smoking, New Jersey will lose all that money.

Does New Jersey's government really want people to quit smoking?  Its behavior -- canceling cessation programs, taxing e-cigarettes -- seems to be aimed more at keeping the money flowing in forever.

If this sounds bad, it gets worse.

Cigarette smokers are clustered mostly at the lower end of the income spectrum.  Effectively, New Jersey levies taxes on the smoking poor to finance general government spending that benefits the broader, richer public.

It's hard to kick a habit like that.

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