This is a guest post by Judith Blythe.
When California politicians realized they could issue bonds against money they expected to collect from cigarette taxes, they thought the golden goose had finally started laying eggs. But as a recent Fox Business News segment showed, that goose laid something else in their lap instead.
California has been borrowing based on how many smokers they expect to continue the habit, as a segment on Varney and Company explained. However, people quit faster than the government anticipated, leading to California to the point where it’s “ready to go $4 billion into default.”Now, according to Fox Business, California’s General Fund, already $10+ billion in the hole, may be on the hook to come up with the money, even as it struggles to pay for teachers and police officers.
Yet some tax and spenders, led by a career politician, want to hike cigarette prices even further. Proposition 29, raises taxes by nearly $1 billion per year in order to give a special interest committee the power to dole out favors to political insiders. But by hiking the price of cigarettes even further, California is further shooting itself in the foot by creating a lucrative black market for smugglers. As New York experienced, after hiking the price of cigarettes to about $10 per pack, thousands of bootleggers flooded the state with cigarettes from less heavily taxed neighboring states and Indian reservations, according to CBS news. That means even less money for the state as tobacco taxes dwindle and precious law enforcement resources have to be committed to fighting the smugglers.