Bacon Bits: Taxes, Crime and Schools

Cigarette taxes rarely yield projected revenues. A Thomas Jefferson Institute for Public Policy study on cigarette taxes in Virginia has found: (1) cigarette taxes produce the most income the year they are imposed, then revenue declines in subsequent years; (2) over the long run, revenues rarely meet projections; and (3) convenience stores and small grocery stores don’t lose just cigarette sales when customers shop for better deals in neighboring jurisdictions, they lose the sale of incidentals. Conclusion: “Any short-term revenue gain often times comes at the expense of a long-term decline in sales and diminished economic activity.”

Baltimore, scandal and violence. The super-prosperous Washington metropolitan statistical area is flanked by two smaller MSAs: Baltimore to the north and Richmond to the south. The core jurisdictions of each, the City of Baltimore and the City of Richmond, have similar demographics and similar challenges with inner-city poverty. But crime-ridden Baltimore is losing population while Richmond, though hardly Nirvana, is gaining residents. The Washington Post profiles Baltimore in an article headlines, “Weary of scandal and violence, Baltimore residents ask: ‘Why do we stay?'” The last time the WaPo paid attention to Richmond was to highlight the police force’s success, one of the best in the nation, in closing out murder cases. The crime rate is a critical variable in inner-city revitalization.

Paying stipends to reduce teacher turnover. The Norfolk public school system has a problem similar to that of Richmond, Petersburg and other urban jurisdictions: high teacher turnover at schools in low-income neighborhoods. Last year, reports the Virginian-Pilot, 20% or more of the positions were vacant at the start and end of the spring semester last year sat several Norfolk schools This year, the school system is paying a $2,200 stipend to teachers who stick it out. “So far, it seems to be working,” concludes the Pilot. “Teacher vacancies are down at most of the hard-to-staff schools.”

More money for school counselors. Lawmakers have approved spending $12 million more next year to hire more school counselors. Legislation also calls for school counselors to spend more time with students and less on administrative duties by hiring new testing coordinators. The goal is to make schools safer by improving student access to mental and behavioral health resources. Of course, advocates of more spending didn’t get all they wanted, and they are sure to come back for more next session. If only there were some way to determine if hiring more counselors accomplishes anything useful. Are there any metrics to help lawmakers gauge effectiveness? Nothing that’s mentioned in this Richmond Times-Dispatch article. Many assertions but very little data.

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12 responses to “Bacon Bits: Taxes, Crime and Schools

  1. From an economic point of view it would probably make sense to place zero sin tax on cigarettes. Not only would the foot traffic into all those convenience stores increase dramatically, raising sales tax revenue equally dramatically, but also those heavy smokers would die sooner, saving all that expanded Medicare we’d otherwise have to pay to keep them going and cure their opiod habits; and think of the increase in sales of guns and other incidentals to all those cigarette runners to other states.

    But the decision to tax cigarettes is not just an economic one.

  2. The local cigarette taxes provide another excellent example of how government creates and increases poverty. The demographics of smoking have changed, with the practice now far more common in lower economic echelons. And the main reason for the results of that study? The taxes are not uniform. Virginia counties may not impose a cigarette tax, but Virginia cities may do so. Most do. Customers with cars buy their cigarettes in a lower-tax location, while inner city customers with no cars (ahem, poor folk) are stuck with the corner convenience store. Stoney and the leaders of Richmond are going to sock it hardest to the people they claim to care about.

    Disclaimer: I’m listed on that study as a contact, mainly because one of the regulars is temporarily out of circulation. Personally, I would lose no sleep if the General Assembly allowed counties to tax cigarettes, but the people paying the most would remain (even there) the people least able to afford it.

    Of course, the other way government creates poverty is by encouraging bad health, another clear result of smoking those tax-generating little coffin nails. The genius of the national settlement worked out years ago when Big Tobacco faced legal extinction is now the government is even more highly dependent on the revenue, just like it depends on those fines and fees.

  3. Well, it’s sorta two different issues on the taxes because something similar happens with other taxes like gas taxes or meals taxes, etc.

    The other thing is that smoking costs everyone because it increases the cost of insurance premiums, MedicAid, Medicare and ER for those who don’t have it.

    In an ideal world, the tobacco settlement money would have gone to pay for the healthcare costs of smokers before it would be used for the bogus ED projects it has been used for.

    So folks are always going to “shop” for lower tax jurisdictions but in the end, not sure it has that much of an effect unless the difference is pretty large.

    The meals tax is a good example. Do people REALLY look for restaurants in places that don’t have a meals tax as a way to pay less for the meal? I’m skeptical on that.

    • That is actually what the study shows, Larry, higher cigarette taxes do cause lower sales and lower revenue, with the presumption the business went elsewhere. That is as I said because in the next jurisdiction there is usually no tax, and $5 per carton will make a difference. City residents will go out to a county store, probably on their way out that way anyway, and county residents will stop buying cigarettes when in the city. There are many reasons to go to one restaurant or another, but your brand is the same anywhere. This is not everybody, but enough shoppers to make a difference.

      • it’s not really LOST tax though – it’s actually “captured” by an adjacent locality ….

        is the local additional tax enough to be $5 a carton?

        Most cities/towns in Va have additional taxes on a range of goods typically anyhow.

        I’m not doubting the study but still skeptical that it really means that much because companies like Sheetz and WaWa build both city and county so they’ll “capture” the “lost” revenues anyhow.

        The net result in the bigger picture is no real “loss” unless you are a mom/pop operation and I’d have to see a bigger scale study to determine what effect that less smokers are involved in it anyhow.

        The TJ folks typically have an “agenda” on taxes anyhow and they have just picked a narrow perspective so they can “prove” the bigger claim that taxes reduce sales… and that’s just not the case across the board.

        Take new cars – they tax the dooda out of them … and yet they still sell quite well. And what happens with lottery tickets – that’s essentially a “tax” also but no shortage of sales and revenues!

  4. and low and behold – here’s a “study” on the meals tax in Virginia:

    The Economic Effects of aMeals Tax on VirginiaLocalitiesTHE BEACON HILL INSTITUTE FOR PUBLIC POLICY RESEARCHAUGUST 2017T he Beacon Hill Institute

    “Conclusion

    When elected officials discuss tax increases, they tend to highlight the revenue effects thinking that the increases will result in a needed flow of new revenue.However, any honest discussion must include an estimate of how the economy will respond to tax increases.Tax increases do not exist in a vacuum; consumers, investors and taxpayers often change their behavior in response to higher taxes. Like all governments, Virginia localities rely on a healthy underlying economy for income. When local governments suffer budget shortfalls, leaders can be tempted to seek additional revenue to fill the gap. However, higher taxes can cause negative economic impacts such as lower employment, investment and incomes. Due to these consequences, most economists recommend against raising taxes during times of budget strain.”

    have a familiar refrain? 😉

    https://cdn.ymaws.com/www.vrlta.org/resource/resmgr/government_affairs/2017/TBHI_VAMealsTax_FINAL__20170.pdf

    • Who wants to hire a study and be surprised by the outcome? Perhaps the meals and cigarette taxes complement each other, given the higher meals taxes are paid by the higher income folks in the nicer restaurants. I do pay for meals but do not smoke…:) But an extra 6 percent on a $50 meal is $3, while going out to the county to buy four cartons of cigarettes will save $20 at $5 local tax per carton, $32 at $8 per carton. People will go to the next jurisdiction for that. I’ve always thought fears a meals tax would squelch the local restaurants were overblown (but it may mean no dessert!)

  5. I don’t like taxes any more than others and I can tell you that eating a meal in Fredericksburg city is expensive because of their meals tax but if there is a restaurant I like – I go anyhow especially if I’m going with a group and the restaurant has been pre-selected.

    The Beacon study I supplied did not talk about pushing business from one locality to another. Instead, they were claiming that the meals tax actually cost jobs and scared away would me restaurants and such.

    It’s a standard claim from anti-tax folks but I don’t think it’s that clear cut at all.

    Most supply/demand studies are premised on no other factors and the choice is how much demand for how much cost but the real economy does not work that way. Some people MIGHT be dissuaded by higher prices but more than a few are not. Not everyone is THAT sensitive to the issue and laziness is a motivator also. People buy all kinds of stuff they don’t need for prices more than they should. THe economy works that way.

    • I agree with you that people don’t base their selection of restaurants on the existence of a meals tax — at least not in the Richmond area. But the cigarette tax is different. If someone buys two or three cartons at a time, he can save $15 by going to a lower-tax jurisdiction. If you’re lower-income, that’s not insignificant money. As Steve notes, not everyone has to think that way to make a difference in the tax take. The tax effects take place on the margin. If 20% of all smokers change their behavior, they can shift a lot of taxable transactions to a neighboring jurisdiction.

      • So they make up with the meals tax what they lost in cigarette taxes?

        I suspect most localities pay attention to taxes that may affect but in general most localities look at what they think they can tax and get the revenues and what they cannot. I note, for instance – the machinery and tools tax and the BPOL – that also affect businesses.

        It’s not one tax – it’s the array of them for a given locality.

        I’d hate to think that a given locality financial well-being rested on one tax. And if it did – they’d back off. They basically try to see what taxes are effective in bringing in revenue and the calibrate on that basis. If you look at that “study” – the “loss” is not major for many of the localities and I wonder if part of it is people stopping smoking.

  6. Going back and looking more closely at the TJ Institute and Cigarette Tax Study:

    ” The
    Institute was organized in Virginia in 1996 and, at that time, was the only state and local government focused public policy foundation based on a philosophy of limited government, free enterprise and individual responsibility in the state.

    It is a “solutions tank” seeking better ways to accomplish the policies and programs currently being undertaken by state and local government – always based on the Institute’s underlying philosophy

    then their view of the Cigarette Study:

    “This paper, “The Impact of Cigarette Tax Increases on Local Government Budgets” does not necessarily reflect the views of the Thomas Jefferson Institute for Public Policy nor its Board of Directors. Nothing in this study should be construed as an attempt to hinder or aid any legislation.”

    Now… these SOUND LIKE weasel words…. or it makes me wonder why this disclaimer is here and I also note this is a funded study NOT from a non-partisan source… ” This Study was funded by Altria Client Services, Inc. (on behalf of Philip Morris USA)”

    I point this out to show how such “studies” that are purported to be legitimate studies without a conflict of interest or pre-conceived ideas gets put into the public realm as a “Study”.

    This is NOT a study. It is essentially a promotion of a particular point of view from the funding sponsors and TJ has elected to be a vehicle for promoting it under the guise that’s it about how putting taxes on something is essentially harmful and counterproductive – in this case – a product that is produced by the folks funding the study.

    So TJ chose to allow it’s name to be used to legitimize this promotion piece as a “study” and then BR continues that deception.

    Let’s be clear – taxes DO have impacts – no question about it but the premise that they actually are counterproductive and the implication that we’d be better off without them is false.

    Taxes do NOT take money from people and send it into a black hole and disappear forever from the economy.

    Taxes pay for important and essential public services – more than 1/2 of them at the local level for public education.

    And despite all the talk of the problems of public education – in most counties and cities , 99% of kids receive a quality education that result in one of the highest literacy rates in the world and in turn drives one of the most powerful economies in the world.

    Taxes do this. Taxes pay salaries of teachers and others who in turn, spend that money on food, houses, cars, etc.. the very same way a private sector worker paid for NOT from taxes, would.

    Taxes are more than necessary – to fund the level of public education and other govt services that we all expect and while we don’t like the money wasted are not spend effectively, the bottom line is that we need to tax to fund education and public safety and public roads.

    At that point – it becomes a question of what to tax and there are no shortage of debates and arguments as where the taxes should be placed – and not.

    Cigarette taxes are a lot like sales taxes and meals taxes and gasoline taxes and the anti-tax folks continue to insist that such taxes “harm” the economy and on any given day – they’ll do a “study” on one of those taxes to “prove” it’s harm…. and to promote the idea that taxes, in general, do harm the market economy and the “solution” ( go back to where TJ says this:

    ” It is a “solutions tank” seeking better ways to accomplish the policies and programs currently being undertaken by state and local government – always based on the Institute’s underlying philosophy”

    Is it really?

    I invite folks to go to the Conclusion to find what alernative to taxing cigarettes they propose.

    It’s not there.

    It starts this way: ”
    Every year, cities and towns across the Commonwealth of Virginia consider raising additional revenue by increasing the local excise tax on cigarettes. But, as this study shows, such tax increases have their own costs. ”

    and ends this way: ” Cigarette tax increases are regressive in that the burden falls heavier on low income households than higher income households. Cigarette tax increases burden households with annual income under $10,000 22.6 times more than households making over $70,000 annually. ”

    Can we name a tax that does NOT fall disproportionally on low-income households?

    Are they advocating for a tax, instead to be levied such that it is not on low-income folks?

    😉

    I suspect THAT IDEA would be even more of an anethma to Conservative “Think Tanks” who would then trot out the “wealth transfer” idea!

    The point here is that:

    1. – this is not a legitimate study – it’s a puff piece funded by folks with a conflict of interest and given a mantle of legitimacy by the TJ Institute.

    2. – there are no real alternative solutions to funding govt – it’s the idea that “taxes” are bad and govt gobbles up money and it disappears down a financial black hole instead of buying stuff that is needed.

  7. This particular study is not even controversial. If a product is taxed substantially in one locality and not taxed in the next, nobody should be surprised people change their shopping behavior to avoid paying the tax. That rates a “Duh” in my book. As I think I noted to someone (not in this string), the group has been advocating for years looking at expanding the sales tax to more services, as a means of raising dollars for both state and locality. That would take action at the GA.

    I did say above that I would have no problem if the GA allowed counties to impose the tax, and once they did, the advantage of crossing lines to shop might be reduced. Then I’d raise the tax to punitive levels, to snuff smoking – not for the money. That’s my personal position. While I have been working with “The Institute” for a few months now, this was not my study, I’m not an officer or board member, and I’m not 100 percent sure who paid for it (and wouldn’t dispute logical guesses). But the group is not organized to lobby.

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