Washington State Lawmakers Propose a 1000% Tax Hike on Tobacco-Related Businesses
Governments have long relied on so-called “sin taxes” to help balance the books. These taxes, imposed on items like alcohol, tobacco, gaming, and other items, are frequently raised when the spending bug or moral panic grips a state capitol.
A bill pending in Washington state, for example, seeks to curb and prevent “nicotine addiction,” Fair enough. Anti-tobacco crusaders have long used high excise taxes on tobacco products to make the habit expensive enough to convince folks to quit.
But as the Tax Foundation notes, this bill takes a different approach, imposing a whopping 1000% hike in the state’s business and occupancy tax on wholesalers and producers:
Washington state’s B&O tax is a gross receipts tax, and while these taxes have plenty of issues, their role is raising revenue from business activity. If lawmakers want to internalize externalities associated with tobacco consumption, they should look to excise taxes. Incidentally, excise taxes on tobacco products are already quite high in the state, and additional increases may result in unintended consequences.
What effect do all these taxes have on producers and consumers? Tax avoidance, of course. Including smuggling:
In 2018, over 40 percent of cigarettes consumed in Washington were not taxed by Washington due to casual (cross-border shopping) and organized smuggling, and new or higher taxes could bolster an already flourishing market for untaxed cigarettes.
And while Washington lawmakers are at it, they are also going after the vaping industry:
In addition to the B&O tax, the bill includes changes to the state’s vapor products excise tax. If the bill were enacted, this tax would be levied at the retail level at 45 percent of retail price, one of the highest effective rates in the country. Although several states have higher statutory rates on vapor products, most levy these taxes at the wholesale level. The new tax would take effect January 1, 2022.
What could possibly go wrong?
Image Credit: By Daniel Schwen (Own work) [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons