West Virginia lawmakers passed a series of bills during a special session in November 2006 that would raise the sales tax on soft drinks and vending machine items to 6 percent while reducing the food tax to 3 percent by 2008.
The legislative package was a compromise, reached after Gov. Joe Manchin (D) initially called for a tax increase on junk food and soft drinks.
The West Virginia legislature’s action fits a pattern that has been increasingly visible recently.
Shift Toward Excise Taxes
A recent study (“State Tax Trends Over Twenty-Five Years: Tax Increases Down, Revenue Sources Shifting”) by Daniel Clifton and Elizabeth Karasmeighan of Americans for Tax Reform shows a shift away from broad-based income tax increases and sales taxes to targeted tax increases, particularly taxes on products some consider sinful, such as tobacco and alcohol.
“By targeting their tax increases to narrower segments of the population, legislators divide taxpayers into smaller groups and minimize voter backlash,” Clifton and Karasmeighan explain in their report.
While the West Virginia tax package exemplifies the shift toward targeted taxes, tobacco tax increases have been the poster child of this trend, with numerous states recently hiking their rates and others still considering hikes.
Tobacco Tax Hikes
On November 17, 2006, Indiana Gov. Mitch Daniels’ (R) office issued a news release in which Daniels said, “Indiana can’t be a healthy state with the second highest rate of smoking in the country, and we can’t lower our smoking rate when we sell some of the cheapest cigarettes in America.”
The governor’s statement accompanied a proposal to increase the state’s cigarette tax by at least 25 percent.
In Iowa, where health activists and special interests have long pushed for a cigarette tax increase, governor-elect Chet Culver (D) said raising the cigarette tax “will be a priority in the Culver administration.”
Iowa’s Republican House leadership had previously blocked a cigarette tax increase. With both houses now under Democrat control, incoming Senate Majority Leader Mike Gronstal (D-Council Bluffs) believes a cigarette tax increase is likely to pass. He told the Des Moines Register for a November 27, 2006 article, “I certainly think lots of things are possible now that weren’t possible before.”
Taxpayer groups point out that tobacco tax increases, like any tax increase, drain money out of the private sector and impose a selective, disproportionate burden on low-income taxpayers for consuming a legal product.
But for groups who are unimpressed by economic arguments, like the Center for Science in the Public Interest in Washington, DC, tobacco taxes are only the tip of the iceberg. They advocate higher excise taxes on everything from fatty foods to cars and TV sets.
In an oft-quoted comment that fueled debate between Tucker Carlson and the center’s director, Michael Jacobson, on CNN’s Crossfire program in 2002, Jacobson said, “We could envision taxes on butter, potato chips, whole milk, cheeses, [and] meat.”
While the American Medical Association recently backed away from recommending a tax on soft drinks to battle obesity, the issue of higher taxes on things that are perceived to be bad for us is far from dead.
In the October 19, 2006 New York Times, Martin B. Schmidt, a professor of economics at the College of William & Mary, called for a 10 percent tax on drive-through foods, while leaving walk-in orders alone.
“At the very least,” Schmidt told the Times, “it may entice some to park and walk rather than waiting in the car.” He continued, “Imposing a drive-through tax would be one way of recouping future taxpayer outlays–perhaps revenues could go directly to government health programs. And who knows, it could help the environment, too: With one move, we could fight obesity and reduce emissions from all those cars idling in the line at Burger King.”
Grover Norquist, president of Americans for Tax Reform, wonders where big government busybodies will draw the line.
“The food police are at it. Soda is bad for you; slap a tax on it. Fat is bad for you; slap a tax on it. Salty food is bad for you; slap a tax on it. Where does it end?” Norquist said.
Additional Burden on Poor
While acknowledging there is a measurable major increase in Americans being overweight, Dr. Elizabeth Whelan, president of the American Council on Science and Health, thinks taxing certain food groups is the wrong answer to the obesity problem.
“Taxing certain foods is one of the strategies the big government advocates are looking at,” Whelan said. “From a scientific point of view, I cannot possibly see how that’s going to do anything except to add a burden on people at the lowest economic level, who spend such a disproportionate amount of their income on food.
“Food obviously supports life, … and the idea of taxing food to deter people from buying certain foods is such an unscientific way of addressing the obesity issue,” Whelan said.
Norquist thinks government is clearly overstepping its bounds when it imposes taxes on particular foods.
“Obesity may be a problem in this country, but even if you accept the premise that it is a public health issue and not a personal health issue, the tax code is not the place to try to solve this problem. The tax code should not be corrupted and used as a consumer control device, but solely as a means to raise revenue for necessary, and only necessary, programs,” Norquist said.
Tax Neutrality Important
That standard has been accepted as a key guideline by the National Conference of State Legislatures.
“The primary purpose of a revenue system is to raise money. One of the goals of a revenue system is to be economically neutral, a goal that is inconsistent with the use of tax policy to make budget decisions or to influence behavior,” NCSL states in its “Principles of a High-Quality State Revenue System.”
Still, a number of states are expected to consider raising taxes on various foods and drinks, along with higher taxes on tobacco products, in the coming months.
Sandra Fabry ([email protected]) is state government affairs manager at Americans for Tax Reform.
For more information …
“State Tax Trends Over Twenty-Five Years: Tax Increases Down, Revenue Sources Shifting,” by Daniel Clifton and Elizabeth Karasmeighan of Americans for Tax Reform, is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.policybot.org and search for document #20327.