The PJ Tatler

IL Department of Revenue and the Law of Supply and Demand

Illinois Governor Pat Quinn signed a Medicaid Reform bill today that cuts services to poor people and raises the state’s cigarette tax from 98 cents to $1.98 a pack.

The $1.6 billion in cuts to the program come amid the state’s ongoing budget problems despite last year’s major income tax increase.

Quinn had warned that without action the health care program would collapse under a mountain of debt.

“One of our most important missions in Springfield this year was to save Medicaid from the brink of collapse,” Quinn said in a statement this morning. “We preserved our health care program that millions of our most vulnerable rely upon.”

Opponents argue the sweeping cuts put the state’s most needy citizens at risk.

The Trib euphemistically refers to the “major tax increase” passed last year. It was hardly an increase. It was a terrorist attack on Illinois citizens and businesses. The personal income tax increased 67% and only last minute groveling by Illinois businesses kept the corporate tax from nearly doubling. Instead, it went up 45%. Businesses have voted with their feet by pulling up stakes and moving to next door Indiana or Missouri who have far lower corporate tax bills. This has cost jobs, as well as bringing in less revenue than expected to state coffers.

Now we have a doubling of the tax on smokers. Raising the price of  cigarettes $1 a pack ($10 a carton) might sound like the state has hit the jackpot and their problems are over. In fact, the increase in the tax rate will actually bring in less revenue than the state is expecting. Those who live within easy driving distance of Missouri, Indiana, and other border states will simply opt to drive across state lines where drooling convenience store owners are going to reap the real rewards of the Illinois excise tax increase.

Not only that, the increase in cigarette taxes will fund terrorism by dramatically increasing smuggling from low tax states that border Illinois like Kentucky, Missouri, and Indiana, and from overseas. William Billingslea, Senior Intelligence Analyst, Office of Strategic Intelligence and Information, Bureau of Alcohol, Tobacco, Firearms, and Explosives, explains the problem:

Investigations have revealed that the terrorist groups work with organized crime groups as well as with the international drug trafficking organizations. Organized crime and drug trafficking organizations already have established trafficking routes, as well as business contacts for the transfer of the commodity for profit. The Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) have found that Russian, Armenian, Ukrainian, Chinese, Taiwanese, and Middle Eastern (mainly Pakistani, Lebanese, and Syrian) organized crime groups are highly involved in the trafficking of contraband and counterfeit cigarettes and counterfeit tax stamps for profit.

Known and suspected Hezbollah and Hamas members have established front companies and legitimate businesses in the cigarette trade in Central and South America. Indications from law enforcement sources are that these companies traffic in contraband and counterfeit cigarettes and tax stamps for profit and then use the proceeds to purchase arms and ammunition.

Using consumables, specifically cigarettes and gasoline, groups that are funding terrorism not only place a legal commodity into an illegal market system but also commit money laundering, fraud (both consumer and business), and tax evasion. The key is that these traffickers are not using the illicitly obtained funds for personal gain but are actually providing the funds as direct support to specific groups that espouse their political or ideological agenda.

The state of Michigan is one of the prime targets for smugglers. A study by the Mackinac Center for Public Policy found that in 2006, 35% of all cigarettes consumed in the state were brought in by smugglers. Not doubt the problem has gotten worse since.

And as far as the windfall revenue is concerned for Illinois:

The anti-smoking advocacy group Campaign for Tobacco Free Kids recently estimated that a $1 increase in the state smoking tax would raise a little less than $300 million — leaving the governor’s office at least $37 million short. But even those numbers probably overstate the tax’s actual revenue potential since cigarette taxes consistently produce less money for state coffers than expected. Between 2003 and 2007, states raised cigarette taxes 57 times. But according to the National Taxpayers Union, only 16 of those hikes met revenue projections.

In anticipation of the radical increase in taxes, the Illinois Department of Revenue has refused to issue an adequate number of tax stamps so that citizens won’t load up on the cheaper product and save themselves some cash:

Fleischli said the state of Illinois is holding back on the sale of tax stamps, which are required to sell cigarettes at retail.

“They’re restricting the sale of a product in anticipation of a product going up in price,” he said. “They’re going to gain because the price goes up.”

The Department of Revenue spokesman Greg Rivara disputed that claim and said stamp availability was increased by 25 percent.

The department is not allowing stores to purchase more than their average number of stamps for this time of year, but the 25 percent increase was intended for the seasonal rise in smoking and the influx of those trying to detour the tax hike, the State Journal-Register reported.

I can report that Mr. Rivara is being disingenuous at best and lying through his teeth at worst. Every store, gas station, convenience outlet, and tobacco retailer I’ve talked to in the last week has said flatly that their distributor cannot supply them even with their “average” delivery because the state is refusing to issue an adequate number of tax stamps to meet the demand. The supply is drying up and several retailers told me they will be out of product before the tax takes effect on June 24

The hypocrisy inherent in radically increasing taxes on a perfectly legal product does not engender outrage because a large majority agree with the discriminatory tax. What no one is willing to do is face the real problem with cigarettes: If they are so dangerous — and they are — why allow their sale and consumption in the first place? Rather than making pious proclamations about saving the children and funding medical care for the poor, why not simply take the logical route heard in all the rhetoric about the dangers of smoking and ban the cancer sticks?

As much as smokers are addicted to tobacco, politicians are addicted to the cash brought in by ever increasing cigarette taxes. They will continue to allow the consumption of a product that kills their citizens — as long as the smoker continues to fill up state coffers with revenue until he either gets smart and quits, or dies.

Politics is a pretty cynical business, but the state profiting from the death of human beings has to be stepping over a line somewhere. This is especially true when you consider the relative costs to society of smoking and alcohol.

According to the CDC, smoking costs society around $96 billion a year in direct health care costs, and an additional $97 billion a year in lost productivity. Overall, however, smokers end up costing society far less than non-smokers:

However, smokers die some 10 years earlier than nonsmokers, according to the CDC, and those premature deaths provide a savings to Medicare, Social Security, private pensions and other programs.

Vanderbilt University economist Kip Viscusi studied the net costs of smoking-related spending and savings and found that for every pack of cigarettes smoked, the country reaps a net cost savings of 32 cents.

“It looks unpleasant or ghoulish to look at the cost savings as well as the cost increases and it’s not a good thing that smoking kills people,” Viscusi said in an interview. “But if you’re going to follow this health-cost train all the way, you have to take into account all the effects, not just the ones you like in terms of getting your bill passed.”

Meanwhile, alcohol costs society far more:

The Centers for Disease Control and Prevention (CDC) said on Monday that in 2006 the price tag for excessive drinking was an estimated $223.5 billion, nearly 21 percent higher than the $185 billion it cost in 1998, the last time a similar study was done.

Seventy two percent was due to lost productivity and the most of the cost was borne by the drinkers themselves in the form of lost income.

Health care outlays accounted for another 11 percent of the total economic cost of heavy drinking, the CDC said, followed by criminal justice expenses and motor vehicle crash costs caused by impaired drivers.

The number of dead from cigarettes tops 224,00 a year while dead abusers of alcohol are over 110,000. These numbers don’t take into account the social cost of alcohol in battered women and children, broken families, and broken lives.

Why don’t we see astronomical increases in taxes on alcohol consumption? Distributors are among the most generous donors to campaigns while far more voters would be impacted by a doubling of the alcohol excise tax than smokers affected by cigarette tax increases. So yes, politics is the reason that governments pick on smokers rather than drinkers.

This is not about health. It is about power — the exercise of which is designed not to save anyone but to acquire their property under false pretenses. There is no doubt lives would be saved if cigarettes are banned completely. But reaching into the wallets of smokers and claiming they are helping ranks among the most nauseating acts of government one can imagine.