AS smoking has declined in the United States, Russia has become a prime market for tobacco sellers. Nearly 60 percent of that country's population smokes, and smokes heavily.
Now Russian officials appear likely to impose restrictions on tobacco advertising and smoking in restaurants. A separate effort to raise excise duties by nearly 135 percent is also under way.
These moves will be praised by health advocates, of course, but the ultimate impact may be relatively limited. According to The Wall Street Journal, analysts say similar initiatives in other countries have driven down the number of smokers by just 3 percent to 5 percent during the first year of implementation and then leveled off.
That would leave Russia with nearly as many smokers, but also more revenue from excise duties. As government finds ways to use the additional revenue, the unintended consequence is to make it harder to eliminate tobacco use. Ironically, government dependence on tobacco tax is a major obstacle to banning tobacco. Just look at the United States and Oklahoma for evidence.
In Oklahoma and other states, policymakers often cite the impact of smoking-related illness when justifying higher tobacco taxes to fund health initiatives and welfare programs. However, once such “sin” taxes are adopted, a significant share of the population suddenly depends upon smokers to subsidize government even as the number of smokers gradually declines. It's a Catch-22 that few policymakers are willing to acknowledge.
One exception was former state Rep. Ray Vaughn, R-Edmond. In 2000, Vaughn filed legislation to outlaw the sale of tobacco in Oklahoma by 2025. The quarter-century phaseout, he said, would allow for a smooth transition for businesses that relied on tobacco sales while ultimately resulting in a healthier population. Naturally, Vaughn's bill went nowhere. The impact on government funding was likely a factor.
From 2001 to 2010, the adult smoking rate in Oklahoma declined from 28.7 percent to a new low of 23.7 percent. But as the number of smokers has declined, state government has become more dependent upon their bad habit.
In 2000, when Vaughn filed his bill, the Oklahoma Tax Commission's annual report showed tobacco taxes generated $74.9 million (about $100.6 million in 2012 dollars). By 2012, thanks to a voter-approved tax increase, tobacco taxes generated more than $293.6 million, with cigarettes accounting for the vast majority of that sum. That compares with just $101.5 million from taxes on alcoholic beverages.
Oklahoma isn't alone in this predicament. Since the 1960s, smoking has fallen by more than half; just 19.3 percent of U.S. adults smoked in 2010. Yet state governments rely more heavily on tobacco taxes today than when smoking was socially prevalent.
On its website, tobacco maker Philip Morris USA says that between fiscal years 2000 and 2010, federal and state cigarette excise tax rates were raised more than 110 times. The company notes, “Relying on a declining revenue base to fund important government programs is akin to sweeping the problem under the rug. The long-term funding needs still exist.”
Philip Morris has an obvious vested interest in making its argument, but that doesn't make the observation any less true. The challenge for Oklahoma lawmakers is to prepare to eventually operate state government without tobacco revenue. Otherwise, positive changes in Oklahomans' health status will become a budget crisis-in-waiting.