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The unexpected consequences of tobacco bans: bonds, taxes, police, and more

April 26, 2023

If California’s legislature intends to create a smoke-free generation, they’ll need to adopt a new approach.

In pursuit of this noble goal, the California legislature is currently pondering Assembly Bill 935, a bill that would prohibit any individual born after 2006 from purchasing tobacco products. From the outset, the logic of the bill doesn’t track. Prohibitions on substances have proven time and again to be futile. Far from reducing the behavior they’re aimed at curbing, they simply push consumers to make riskier choices to get what they ultimately want — and this ban would be no different. But there are even more subterranean downsides to these bans. If California moves ahead with this legislation, the entire state budget will be at risk.

If the state government is truly committed to deterring smoking, they should focus on proven harm reduction policies instead of ineffective and counterproductive bans.

Proponents of tobacco prohibitions have argued that forbidding individuals from purchasing and consuming tobacco products would reduce federal and state health care costs as the incidence of tobacco-related illnesses, like cardiovascular disease and cancer, would decrease with smoking rates. It has been estimated that yearly tobacco-related health care costs in the Golden State total more than $15 billion, with almost $4 billion of those expenses sourced from Medicaid. If a ban were successfully implemented and followed religiously, it could help mitigate these expenditures and might save taxpayers big money — or so the argument goes.

In reality, however, the ban won’t work. People will keep smoking, they’ll just buy unregulated, untaxed cigarettes from a black market that’s sure to spring up, or they’ll drive to neighboring states to buy their smokes legally. Sure, the ban might deter some and cause smoking related illnesses to dip, but it seems unlikely medical costs will decrease enough to offset the billions of dollars in tobacco excise taxes the state would be missing out on every year. Today, California’s excise tax rate on cigarettes is $2.87, the 16th highest in the nation and almost a dollar above the average U.S. tax rate of $1.91. If the state were to eventually prohibit tobacco products entirely, like this bill intends, California would be out an estimated $2 billion in tax revenue a year. Revenue from these taxes goes towards the tobacco tax fund which finances the Tobacco-Use Prevention Education Program and the Tobacco-Related Disease Research Program, among other state programs focused on harm reduction.

Not only would California lose out on this revenue, but citizens would also be incentivized to road trip for their smokes. We know from recent studies that consumers are more than willing to make these treks in order to legally purchase these substances, in turn increasing their risk of car-related injuries which could then contribute to health care costs.

The financial implications of the ban go even deeper than tax revenue. If this bill were to be passed, California puts itself at risk of defaulting on their tobacco bonds, like New Jersey nearly did back in 2014. If the state defaults on these bonds (one of which doesn’t reach its final maturity until 2066) due to decreasing tobacco revenue from the phase-out ban of the substance, investors will still be entitled to collect the money they are due. A default like this has the potential to negatively affect the state budget (and, possibly, taxpayers) through added debts.

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Even more worrisome, however, is the bill’s potential criminal justice implications. New York, for example, has a $4.35 excise tax rate on cigarettes which has resulted in individuals buying the products from neighboring states with lower tax rates and selling them on the street. In 2014, Eric Garner was killed by a New York City police officer while he was being arrested for illegally selling single cigarettes from packs without a tax stamp. While the proposed legislation does not detail the repercussions individuals could face if they were to be caught smuggling tobacco products into the state, California is inviting similar criminal justice issues by promoting total bans like those outlined in AB 935.

Harm reduction policies like the educational services and rehabilitation programs already available in California (and which are at risk of getting defunded if this bill passes) would mitigate these risks while helping to reduce the incidence of smoking in all generations. It would be incredibly unwise for the state of California to systematically diminish the tax revenue that funds their tobacco harm reduction programs. It is not the role of the government to forbid its citizens from choosing to smoke cigarettes — instead, they should focus on promoting healthier alternatives and educating the population on the long term health effects these products have on smokers and those surrounding them.

Sofia Hamilton is a Research Associate at a DC think tank and a Contributor with Young Voices where she focuses on issues related to health care, housing, and welfare. Her work has previously appeared in the Orange County Register, the South Florida Sun Sentinel, and Real Clear Markets.

Orange County Register

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The unexpected consequences of tobacco bans: bonds, taxes, police, and more

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