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A Bad Idea Gone Too Far: Proposition 86, The Tobacco Tax

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Publication Date: October 2006

Publisher(s): Reason Foundation

Author(s): Skaidra Smith-Heisters; Geoffrey F. Segal

Topic: Banking and finance (Taxation and tax policy)
Health (Health care financing)

Type: Brief

Coverage: California


Proposition 86 seeks to expand California's health care services and medical research funds by approximately $2 billion annually, initially through an excessive 300 percent increase in the state's tax on tobacco products. Fewer than 15 percent of California adults are smokers-- the second lowest rate in the nation--but tobacco consumers constitute a relatively captive tax base, from which politicians can draw funds for a variety of programs, regardless of merit, without fear of meaningful political backlash. The tax itself and programs funded by these measures often have far-reaching consequences, such as increased tax fraud, smuggling, and diversion and waste of state funds that are not fully appreciated by voters at the ballot box. While there is still room for health care reforms that would lower costs and improve quality of care in California, Proposition 86 doesn't address those concerns--it only adds 38 pages of mandates, new programs, and activities that over time will develop their own bureaucracies and become long-term liabilities for the state.