Nanny state runs amok with city’s cigarette tax

“He’ll tax the pennies on your eyes,” sang the Beatles about the intrusive tax man. Now the mayor of San Francisco wants to tax your butts.

Next month, Mayor Gavin Newsom plans to ask the San Francisco Board of Supervisors to impose an excise tax of 33 cents on every pack of cigarettes sold locally, justifying it as a way of forcing smokers to pay for cleaning The City’s streets of unsightly cigarette debris. According to the mayor, discarded smokes are responsible for nearly one-quarter ($10.7 million) of the $44 million San Francisco spends annually on litter removal.

American Indians counted coup, President Lyndon Johnson was a master at counting noses and the job of census workers is to count heads. I would like to meet the San Francisco bureaucrat who, as a contributor to The City’s annual “litter audit,” so precisely counted butts.

Facing a budget deficit for the coming fiscal year that amounts to nearly $500 million, Newsom, like politicians nationwide, apparently thinks that smokers are a bottomless well of public-sector revenue. But as the Laffer curve teaches, that well eventually will run dry. The federal excise tax on cigarettes rose by 69 cents per pack (to $1.01) on April 1 — no fooling — and Congress now is considering doubling the federal tax to $2 per pack to help finance President Barack Obama’s health-care reform plan. The demand for cigarettes may be inelastic, but it nevertheless must be true that further increases in tax rates will cause tax revenue to shrink at some, perhaps not-too-distant point.

It is sheer fantasy to predict, as Newsom has done, that his plan will produce $11 million in additional annual revenue. Smokers will shift their cigarette purchases to sellers outside city limits. The mayor seems to be as oblivious to this as was former Washington, D.C. Mayor Marion Barry, who back in the day thought he could solve his city’s own budget problems by raising its excise tax on gasoline by 5 cents per gallon. He was forced to rescind the tax increase within a month’s time when revenue losses made it obvious that residents, along with D.C.-bound commuters, were filling up their tanks in the Maryland and Virginia suburbs.

Excise taxes on cigarettes, like all selective consumption taxes, are regressive. Their burden falls much more heavily on the poor than on the rich. And even if the butt counters are accurate, smokers account for only one-fourth of the total cost of keeping San Francisco’s streets clean. Who accounts for the rest? Buyers of candy bars, who throw their wrappers away on the sidewalk? What about the buyers of newspapers, fast food, beer and the many other products that generate nonbiodegradable waste? Why single out the buyers of cigarettes? The answer is that smokers tend to be poor, consume something that nowadays is socially objectionable and, hence, are extremely vulnerable to the predatory politics of public finance.

People who like eating candy bars should not be too smug, though. They may well be next on the list of taxpayers targeted by The City’s “public servants” to fuel their insatiable spending appetite. Indeed, Newsom already proposed levying a fee on any “large” store that sells soft drinks containing too much high-fructose corn syrup. Once government decides to tax products that, even on the most controversial of scientific evidence can plausibly be claimed to be unhealthful, almost everything is up for grabs by the tax man.

Newsom and other supporters of a higher excise tax trot out the standard argument that the proposed tax increase will help smokers break their politically incorrect habits.

We may soon hear that taxing butts is “green.”

But rhetoric aside, the proposal is all about protecting municipal jobs. Newsom admitted as much in saying that the extra $11 million he expects will be “enough to keep street sweepers employed.”

Clean city streets benefit everyone. It is unconscionable to shift a large share of the burden of paying for them to the consumers of one product, no matter how shunned the product may be.

William F. Shughart II is a Senior Fellow at The Independent Institute and editor of “Taxing Choice: The Predatory Politics of Fiscal Discrimination.” He is the Frederick A. P. Barnard Distinguished Professor of Economics at the University of Mississippi.