Huge budget gaps are looming for the Idaho state government and some lawmakers are scrambling to decide how to shore up funding for corrections, health and welfare, and education.
Some state lawmakers are examining increases for “sin tax” items, like cigarettes, alcohol, and other tobacco products. Idaho Senate Pro Tem Bob Geddes, R-Soda Springs, told the Idaho Statesman that increases on those items could be part of a myriad of solutions to solve the budget crisis.
Idaho wouldn’t be the first state to increase “sin taxes” to fund government. Earlier this year, New York increased its taxes on cigarettes by $1.60 to $4.35 per pack, the highest rate in the nation. By comparison, Idahoans only pay 57-cents a pack in taxes. Idaho’s cigarette tax rate is eighth-lowest in the nation.
But just how much could those increases contribute to the state’s general fund? One report suggests that if Idaho were to add $1.00 to its cigarette tax, the state could gain as much as $46 million in revenue on an annual basis.
But that tax increase would come at a cost paid mostly by low-income residents of the state. A 2007 Heritage Foundation study relating to an expansion of the State Children’s Health Insurance Program, or SCHIP, found out who really pays when governments use cigarette tax hikes to fund government. Data suggests that 28 percent of the people who smoke make less than the federal poverty level. Another 26 percent of smokers are considered poor, making between 100 and 200 percent of poverty level guidelines.
Cigarette taxes don’t always provide a stable funding base. In 2005, Idaho saw $45.7 million in revenue from cigarette taxes alone. Since then, the state’s take in revenue has stayed mostly steady, with minor variations in revenue amounts. That was, until fiscal year 2010, when the state saw a 10.58 percent drop in total cigarette tax revenue. That decrease reduced the state’s revenues by more than $4.6 million to a total of $39.6 million.
Those in favor of increasing “sin taxes” note that hikes serve a dual purpose. Campaign for Tobacco-Free Kids (TBF), a group dedicated to developing policy options that prevent youngsters from taking up smoking cigarettes, notes that the tax increases revenue while decreasing the number of smokers, thereby decreasing potential costs to the public health caused by smoking. TBF believes that the $1.00 increase per pack for Idaho would save about $230 million in health care costs and would force as many as 6,200 Idahoans to stop smoking.
The state of Delaware, as cited in the group’s report, increased its cigarette tax by 60-cents per pack in July of 2007 and saw a 35.1 percent decrease in the number of smokers pared with a 35.1 percent increase in the state’s revenue. Delaware netted $31.6 million from the hike. Texas, which more than tripled its cigarette tax rate in early 2007, saw a revenue increase of more than $1 billion complemented by a 21 percent decrease in the overall number of packs sold each year.
Idaho House Minority Leader John Rusche, D-Lewiston, isn’t totally opposed to a hike in the cigarette tax. Rusche, a physician by trade, says the hike could do much good to prevent teens from taking up the habit of smoking. The Lewiston Democrat called a tax hike on cigarettes “another smoking prevention tool” in the fight against teenage tobacco use.
But is it fair for Idaho’s low-income resident to fund state government operations and social welfare programs? “It may be that they pay more,” said Rusche, a member of the House Revenue and Taxation Committee. “On the other hand, it will go a long way to promote their good health.”
The minority leader would make no firm commitments to tax hikes. “This is a problem that requires investigation,” said Rusche, who echoed Geddes’ notion that legislators would use various methods to balance the state’s budget next year.
But one Republican on the tax panel says only desperation leads lawmakers to go after sin taxes. Rep. Lenore Hardy Barrett, R-Challis, said she would oppose the hike because she is against tax increases in general. “Boil it down: stop spending and lower taxes,” Barrett told IdahoReporter.com. The Challis Republican said that she doesn’t think people should smoke or drink, but “that’s their choice and they’re not breaking the law.”
But what about the positive effect a tax hike would have on public health? “That’s a fallacy,” said Barrett, an ex-smoker herself. “Having been a smoker, I know people will pay the price. You just won’t buy a quart of milk or something else to pay for it.”
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