NCPA - National Center for Policy Analysis

Sumptuous Tobacco Settlement Falls Short

March 13, 2002

According to a new study from the Council of State Governments, falling cigarette consumption will reduce state revenues from the tobacco settlement by 20 percent, or $14 billion through 2010, from initial projections.

The settlement was always about one thing: extorting money from the tobacco industry.

In theory, the principal purpose of the settlement money was to fund smoking cessation and prevention programs. But a General Accounting Office report last year found that only 7 percent of settlement funds were used for this purpose. The rest went for general government spending.

Since ancient times, governments have tried to control the consumption of products considered unnecessary or extravagant. They enacted "sumptuary" laws that primarily restricted food and dress.

During the Middle Ages, these laws could be amazingly detailed, specifying precisely what people were allowed to wear according to their rank in society.

Sumptuary laws were justified by the need to keep the lower classes from wasting their money, but they also helped preserve class distinctions.

  • The Puritans first used differential taxation of commodities for sumptuary purposes. A 1676 law in Connecticut appears to be the first that taxed luxuries at a higher rate primarily to reduce consumption, rather than for revenue.
  • Today, some want heavy taxes on caffeine, guns and even junk food to discourage their use. But many others just want the money.
  • The states supported repeal of Prohibition in large part because they wanted the revenue from taxing legal alcohol consumption.

Many states are now considering steep increases in tobacco taxes to close budget gaps. However, high rates encourage smuggling and reduce consumption, causing revenue to fall. Eventually, some may actually cut their tax rates to raise revenue, as some European countries have already done.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, March 13, 2002.


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