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CA Prop 29 cigarette tax increase defeated


One of the statewide propositions on the June 2012 California ballot was Prop 29 to increase the cigarette excise tax by $1/pack. Per information on the CA Secretary of State website, the extra funds would "be dedicated to fund cancer and tobacco-related disease research and tobacco prevention and cessation programs."  The initiative was supported by the American Cancer Society, American Lung Association and American Heart Association, among others. It was opposed by tobacco companies, Californians Against Out-of-Control Taxes and Spending, California Taxpayers Association, and others.
Prop 29 was narrowly defeated - 50.9% to 49.1%. Reuters reports that opponents spent about $47 million and proponents about $12 million (Christie, "California voters reject raising tobacco tax," 6/7/12).  That sounds to me like $59 million that could have gone to cancer research rather than an initiative that violates principles of good tax policy.
The significant problem with Prop 29 is that it would earmark the tax dollars for a specific purpose rather than place them in the General Fund. That is not the way to design a tax system or a government budget. Why should cancer research spending be tied to whether people keep on buying cigarettes?  While I think all of California's "sin" taxes should be reviewed periodically to determine if they should be increased or otherwise modified, any revenues should go into the General Fund. We should not be binding the hands of the legislators.  California already has a lot of constraints on the budget process (such as Prop 98) rather than trusting the elected officials to create an appropriate budget. 
A report on problems of earmarking taxes was released in May 2012 by George Mason University. The report, by economists George R. Crowley and Adam J. Hoffe, is entitled, Dedicating Tax Revenue: Constraining Government or Masking Its Growth?  The first paragraph of their report notes additional problems with earmarking taxes:
"Evidence shows that tax revenues dedicated to politically popular expenditures like education or highways are used to increase general fund revenues and overall government size rather than for the intended purpose. Dedicated, or “earmarked” tax revenues, are generally ineffective in increasing expenditures for the program they are tied to, and they successfully increase total government spending."
What do you think?



Robert Barker
Title: Professor of Accounting
Company: Calif. State Univ., Northridge
(Professor of Accounting, Calif. State Univ., Northridge) |

Well said, Annette. I completely agree. California tax policy is a real mess, thanks to the combination of an inert legislature and "statute by proposition" efforts like (well intentioned) Prop. 29.

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