Cigarettes

Obama Wants to Fund Universal Pre-K Using Cigarette Taxes. It Won't Work.

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Photo credit: AMERICANVIRUS / Foter.com / CC BY-NC-SA

President Obama's new budget proposes paying for a $66 billion universal pre-kindergarten program by increasing the federal cigarette tax to $1.95 a pack. In theory, that raises about $78 billion over the next decade. Enough to fund the program—but not forever. The problem, as with all government programs funded under the kill-two-birds theory used to justify relying on smoking taxes as a revenue mechanism, is that cigarette taxes tend to discourage people from smoking. And with fewer people smoking, there's less revenue to be raised from cigarette taxes.

As The Washington Post's Brad Plumer points out you can see the expected decline within the president's budget projections: Revenue peaks at $9.8 billion in 2015. But by 2023, the end of the 10-year budget window, it's already down to $6 billion—and presumably would continue dropping from there, making it plainly unsustainable.

And that's assuming that these revenue projections are accurate. States that have raised smoking taxes have found that they often aren't. Between 2003 and 2007, states raised cigarette taxes 57 times. Yet according to the National Taxpayers Union, just 16 of those hikes brought in the expected revenue.

I don't expect Obama's pre-k proposal to go very far, but even still, there's something perverse about even proposing to fund a program based on revenues raised by the perpetuation of an activity one claims to want to stamp out. Either you end up with a revenue source that isn't sustainable, or you end up with a program that relies on the continuation of an activity you claim to despise in order to function.

Granted, that hasn't dissuaded legislators from this sort of thing before. Arizona got into budget trouble recently for relying on tobacco industry revenues to fund its Medicaid program.