Unintended Consequences

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Sometimes I wonder if politicians operate in a vacuum.  They pass legislation with one particular goal in mind with little to no regard of the potential consequences of what that legislation brings.

Let's take, for instance, the idea of sin taxes.  Governments pass taxes on things like alcohol, cigarettes, and now, more and more, candy and sodas.  The goals of such taxes are usually twofold.  One, to try to discourage consumers from using the products that government has determined are harmful.  Second, the government uses these taxes as revenue to fund various projects.  Unfortunately, these taxes are regressive in nature, impacting lower income consumers disproportionately.

Earlier this year, the federal government increased the federal excise tax on tobacco products in order to fund the State Children's Health Insurance Program (SCHIP).  The results of this tax increase are that tobacco sales have declined and there is not enough revenue to cover the cost of program. 

Not only does the federal government pass these taxes, but also the state governments.  Each state has their own tax rates for tobacco.  No surprise, but those states that have tobacco as a major crop, have lower taxes on cigarettes.  In July, the state of Florida increased their tax on cigarettes by $1 per pack.  The results of this tax has led to a decrease in cigarette sales of 28% from last year.  So in one respect, the goal of reducing tobacco consumption would appear to be successful.

Unfortunately, like most legislation, there are consequences that were not considered when the legislation was passed.  First, for those folks that live on state borders where there are lower taxes, some are buying their smokes across state lines. That actually increases the revenues of the neighboring states and decreases the revenue for your own state.

More importantly, is the consequences for those businesses that rely on cigarette sales for their profit.  In the state of Florida, most cigarettes are sold in convenience stores and account for up to 34% of sales.  Those sales help pay the salaries of the store's employees.  When you lose that large a percentage of your sales, you can no longer afford to pay the same salaries you were previously.  Those businesses will either be forced to lay off employees or reduce the number of hours those employees work.  Neither are good for those employees or the economy in general.