In August, I wrote that California’s prohibition on flavored cigarettes was bad for many reasons. One of those reasons is that the “sin tax” on tobacco funds the state’s early childhood programs “First 5”, and that no alternative funding source had been identified. Although I am philosophically against state-funded programs for early childhood, it is a stupid thing to pass laws that effectively cut funding for them, without finding an alternative funding source.
The Tax Foundation reported on the tax-paid cigarette market after the first month of California’s ban on flavored tobacco. This represents a 17.3 percent drop in sales year-over-year. That is more than $300,000,000 in tax revenue lost annually.
This issue, regardless of one’s opinion on the utility or propriety of government-funded programs for early childhood education, highlights an aspect of the interaction between sin taxes and product bans that is rarely discussed. It’s in the best interest of these programs to encourage people to continue using tobacco by allowing legal sales. The demand for these products will not decrease if they are banned. Instead, it will increase as the product is sold illegally, without tax.
The Los Angeles Times has a report on this, explaining how Los Angeles County will alter its current offerings in response to funding impacts, and, wait for it, may even ask the state for additional revenue sources.
Greater regions, like First 5 LA, are reducing their offerings and hoping to transfer some of the programs that they funded previously to county agencies. The work is largely done in the early preschool expansion of L.A. Transitional Kindergarten is a free year of public education that will be provided to all 4-year-olds by the state.
There’s disagreement among the First 5s network, which includes an agency from the state that receives 20% of tobacco funding and 58 agencies in each county. Should they cut back even more, or should they ask the state for additional sources of income?
Who could have predicted this?
Even though she has a limited understanding of economics, the executive director of First 5 California remains optimistic about the program’s future.
Jackie Thu-Huong Wong is the executive director of First 5 California. The statewide agency. “I’m sorry to sound so gloomy, but I don’t see a future with First 5.”
Ms. Thu Huong Wong knows that tobacco is addictive. However, she doesn’t seem to understand that this addictive quality will cause users to purchase the product whether it is legal or illegal. If they purchase it illegally or on the black market, she will not receive any revenue.
Other states still consider following California’s policies despite this failure. California’s experience shows that it’s time to end the circus of sin tax and product bans and reduce government “help” with public health.