The FDA is about to get a lesson in how prohibition fails
The FDA is quickly getting back to normal now that it appears the worst of the coronavirus waves have passed.
And by getting back to normal, we mean plunging headlong into both prohibition and economic illiteracy. As the Tax Foundation writes, the FDA is about to ban menthol tobacco products. The aim: reduce smoking. The results will not come close to meeting the prohibitionists’ aims. As the Tax Foundation noted, a ban might even make matters much worse. There’s the tax revenue to Uncle Sam and state governments, for starters:
A nationwide ban would result in a federal revenue decline of $1.9 billion in the first full year after prohibition. In the states, the decline in excise tax revenue would be $2.6 billion, the decline in sales tax revenue would be $892 million, and the decline in MSA payments would be $1.2 billion, for a total state revenue loss of $4.7 billion. A relatively small portion of the revenue loss would be offset by increases in taxes from other tobacco products, which could still be sold flavored. Both state governments and the federal government would experience significant decreases to their tobacco tax revenue without experiencing a corresponding decrease in consumption.
Wait…tobacco use might not fall?
…more than half of the market would remain taxed, but slightly more than 40 percent of consumption would move into other legal tobacco or nicotine use (some taxed at lower rates and some not taxed at all) or illicit tobacco use. In our assumptions, around 20 percent of current menthol cigarette consumption will move to untaxed consumption.
It’s worth noting that the estimates of cross-border trade in Europe (13 percent of menthol smokers) are self-reported (likely underreported due to illegality), and real illicit trade could be significantly higher in the U.S., since the size of the menthol market makes it a much more profitable market for illicit trade.
And about those state revenues…
If the national ban proves even a fraction as ineffective as the Massachusetts ban, it becomes a very expensive exercise in narrowing a tax base, which effectively leaves fewer taxpayers to cover the costs of the externalities associated with smoking. Moreover, the ban will further contribute to the tobacco tax’s lack of stability resulting in some uncertainty for the government programs funded by these revenue streams.
Prohibition never lives up to its billing, and always results in “unforeseen” consequences. The FDA is about to learn those lessons all over again.