California Shouldn’t Create Constitutional Workarounds to Target Smokers With Tax Increases


California Shouldn’t Create Constitutional Workarounds to Target Smokers With Tax Increases

Prop. 56, the latest tobacco tax attempt, is mostly a giveaway to special interests.

Even among the complex maze of 17 statewide ballot initiatives and the 224-page voter guide this year, Proposition 56 stands out. Prop. 56 would increase tobacco taxes by $2 per pack, which is expected to be a $1.4 billion annual tax increase on cigarettes and other tobacco products (and a new tax on e-cigarettes).

But as the battle lines are drawn, there’s an interesting dynamic that could pit those calling for more education spending against those calling for higher tobacco taxes.In 1988, voters amended the California Constitution to prioritize K-14 education funding through Proposition 98, dedicating 43 percent of state revenue to education. Importantly, Prop. 98 requires future tax revenue brought in through new sources to also send 43 percent of the new tax money to education.

But Prop. 56 is worded to exempt itself from the Prop. 98 provisions, which would allow them to avoid sending approximately $600 million per year of tax revenue to California schools. Prop. 56 asks California voters to contradict themselves and does an end run around Prop. 98’s constitutional funding requirements to direct billions to the health care bureaucracy.

Prop. 56 is being sold as a way to fund health care for low-income residents. Doctors often say they can’t take Medi-Cal patients because the payments they receive for providing care don’t cover their costs. But Prop. 56 wouldn’t fix this problem and fails to provide accountability.

The initiative lacks controls to ensure that the tax windfall would actually be dedicated to expanding or improving health coverage for those on Medi-Cal. Prop. 56 would send as much as $1 billion annually to insurance companies and big hospitals that serve the Medi-Cal system, with no requirement that they actually provide coverage for even one more low-income patient. And it includes few, if any, safeguards for taxpayers to ensure that hospitals and health care companies make proper use of the funds. Prop. 56 is mostly a blank check to health care providers, with zero accountability to taxpayers.

Additionally, and crucially for the state’s long-term fiscal picture, Prop. 56 can’t be viewed as a reliable revenue stream for health care costs. The state is actively working to reduce smoking. As smoking rates decline, Prop. 56’s revenue would also decrease. Thus, the state would be looking for new funding sources to make up for decreasing tobacco taxes. History tells us that it is a good bet that the same groups advocating for Prop. 56 will continue to push for new ways to extract more money from taxpayers.

California’s smoking rates have been cut in half since 1988 and are already the second-lowest in the nation, behind only Utah. Prop 56 isn’t about reducing smoking. It’s not about protecting kids. It’s a giveaway to health care providers.

Health care special-interest groups have been pushing the California Legislature and the governor for a pay raise – via an increase in Medi-Cal reimbursement rates – for years. Time after time, Gov. Jerry Brown and legislative leaders have refused to go along. That’s why those same groups are instead going straight to the ballot.

California’s ballot initiative process has created a series of increasingly complex budget mandates and taxes pushed by special interests. Creating constitutional workarounds and targeting smokers with tax increases isn’t a sustainable way to try to provide health care to the poor or to run a state’s finances.

Brian Fojtik is a senior fellow at Reason Foundation. This column first appeared in the Orange County Register.