Tuesday, January 13, 2009

GOP Governors lighting up in the dark

If you wonder why we've been covering tobacco tax issues so much, there are three reasons.

1) Numerous rising stars in the GOP orbit (think Crist, Huntsman, Barbour, Sanford, Jindal, Palin) are governors who are dealing with budget deficits. How they resolve those deficits provides critical insight into what moves them, and how they'd perform as both candidates or President. At least four of them have tobacco tax hikes near their desk or already there (Crist, Huntsman, Sanford, Barbour).

2) The tobacco tax presents a philosophical conundrum: on one hand, Republicans hate raising taxes. On the other, it's a "sin" tax, and as such, social conservatives are more amenable to doing the dirty on the dirty.

3) It provides a relatively user-friendly window into the world of supply/demand in revenue generation. Tobacco taxes are increasingly viewed as an easy and somewhat politically acceptable way to raise money, but there's always the possibility that the goose will kill the golden egg, or the golden egg will crack, or whatever the hell that fable is.

The New York Times:

Florida’s proposed withdrawal is perhaps the starkest example of the growing addiction to tobacco-related money. Since 2001, cigarette tax increases and diversions of tobacco settlement payouts have become a favorite solution for budget crises nationwide. But as the current recession deepens, disputes about how the money should be spent have intensified, even as tobacco money’s potency has been weakened by past use.

“While states have viewed tobacco as the first ‘go to’ tax for the better part of a decade, it won’t be anywhere near enough,” said Donald J. Boyd, a senior fellow at the Rockefeller Institute of Government, a research arm of the State University of New York .

“Increases in other taxes — yet to be proposed and enacted — will be far larger than in the last recession, and the relative importance of tobacco tax increases will be less.”

At least 17 states, including California and New York, have already sold bonds based on future tobacco settlement payouts and spent some or all of the money before they have it, according to the National Conference of State Legislatures. Moreover, cigarette taxes are also less lucrative than they were a decade ago because cigarette sales in the United States have dropped by more than 20 percent.