Economics and fairness: California’s Prop 29

Last Wednesday I was listening to Insight, a locally-produced public radio show.  Jim Knox of the American Cancer Society was on promoting Proposition 29 in advance of this Tuesday’s California primary election.  Sharing air time with Prop 29 detractor David Spady, he mentioned tobacco company funding every other sentence, seeking to trigger anti-corporate, Pavlovian antipathies in the listening audience.  More striking though was his argument that California is only one of three states that has not raised tobacco taxes in the 21st century.  Heaven forbid the Golden state fall behind the unyielding curve of progress!

Two previous, successful propositions in 1988 and 1998 have brought California’s current cigarette tax to $1.87 a pack.  Prop 29 proponents anticipate it would raise an additional $700 million annually, deter youths from picking up smoking, and get 110,000 adults to quit the habit.  That’s possible, but given the inelastic demand of a highly addictive product, such a steep price increase will unleash a number of unintended consequences.

On Prop 29’s passing, many smokers would simply shift to alternative forms of consumption.  For all the trouble of a new bureaucracy, the state would end up arbitrarily boosting the home-rolled industry at the expense of cigarette pack producers.  With the tax hike, some smokers would make more purchases out of state.  Yet others would resort to stealing from vendors or neighbors.  Even if not victimized by robbery or theft, convenience stores would lose revenue on impulse buys incidental to a cigarette run.

The tax would burden a concentration of the vulnerable: the addicted, those suffering from smoking-related health impacts, lower-income persons, and the businesses that serve them.  Perversely, those who would benefit most would be relatively well-to-do researchers and scientists.  Talk about reverse Robin Hood!  Nothing wrong with getting wealthy, but it’s unjust and inefficient when redistribution occurs through such ill-considered legislative interventions.

Arthur Brooks, who has been promoting his pro-market ethical manifesto The Road to Freedom, decries not just the harm but immorality that comes from the one-way push for ever more taxation and regulation.  It’s easy and often that a society decides through government that a certain problem exists and can be solved by taking money from one place and throwing it at another.  This is the profound moral hazard that every democracy must surmount if it is to survive.  California’s prospects prove dimmer with each election.  On the flip side, we have to bottom out at some point, right?