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Guest column – ‘Sin’ tax not good deficit tool


By Rob Schofield

An impressive alliance has proposed raising North Carolina’s cigarette tax by 75 cents a pack. These advocates were buoyed by powerful evidence that no other policy option offers such a direct and dramatic assurance of improved health for all North Carolinians, particularly teens.

Unfortunately, most participants miss the single most important issue — not health or big tobacco, but wealth and its consistent redistribution from the lower to the upper end of the income spectrum.

Over three decades, both America and North Carolina have undergone a rapid economic transformation in which the wealth of lower and middle-income households has stagnated or fallen, while that of the wealthy has risen rapidly.

The income of the top 5 percent of North Carolina families has spiked by more than 52 percent in two decades, while the richest 1 percent has seen even larger increases. Yet the income of the poorest fifth has risen only $730 on average in 20 years.

The gap is largely the result of the ongoing policy overhaul that has dramatically cut “progressive” taxes, such as inheritance and income taxes, that take a larger share from the wealthy, while raising “regressive” taxes, such as sales and excise taxes on cigarettes, that take a larger share from middle and low-income families.

This does not mean increasing the cigarette tax is a bad idea. Taxes can be, and often are used to encourage and curb desirable or problematic behaviors.

The problem comes when governments rely too heavily on “sin” taxes to fund core services.

Raising cigarette taxes to discourage teen smoking is a laudable objective, but doing so to fund government is not.

Ideally, lawmakers should adopt a dollar-for-dollar trade, with all revenues raised in higher cigarette taxes rebated to low-income taxpayers as an “earned income tax credit” to reduce their overall tax burden.

That would improve health, accommodate a large jump in the tax and slow the growth in inequality.

If budget pressures make such a swap impossible this year, lawmakers should raise the cigarette tax no higher than the national median of 50 cents and adopt other more progressive tax hikes to balance the impact.

As policymakers wrestle with the proposed cigarette tax hike and other revenue options, it is essential that they keep the broad, historical impact of their decisions in focus.

Failure to do so may exacerbate a disturbing and dangerous growth in the gap between the state’s “haves” and “have-nots” for decades.

Rob Schofield is a staff attorney for the N.C. Justice and Community Development Center in Raleigh.

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