Pre-K and Tobacco, Perfect Together?

Steve BarnettHigh-quality pre-K for all funded by a tobacco tax is a winning combination. It makes perfect sense from both economic and political perspectives. Let’s start with the economic perspective. Economics is primarily concerned with two issues, efficiency and equity (fairness). The primary economic argument against higher taxes is that they lead people to make less optimal choices, perhaps even discouraging socially beneficial activities that we otherwise want to encourage. Yet, smoking is an activity that we actually want to discourage.  It imposes high social costs, and it is an addiction that most smokers acquired before adulthood, would prefer not to have acquired, and would like to quit. A tobacco tax will reduce the number of new smokers and the number of cigarettes consumed by those who already smoke.

Big tobacco (Altria, Reynolds American, Lorillard, and Imperial Tobacco have 95 percent of the U.S. market) can be expected to object that a tobacco tax is unfair because it hits low-income Americans hardest. Their concern for the plight of the poor would be touching if they evinced any concern that their products unfairly increase disease and death among low-income Americans and their children (from secondhand smoke). A tobacco tax will reduce smoking and improve health most for the lowest income Americans because their smoking behavior is more price sensitive than that of higher income smokers.  To this we can add that high-quality pre-K produces its greatest benefits for children from lower-income families, though all children will benefit.

Another objection opponents have already raised to the tobacco tax is that because it will reduce smoking the revenue generated will decline over time. Thus, they say it is not suitable as a permanent funding source for pre-K. Apparently, they have not read the President’s plan or his budget.  The President does not propose perpetual federal funding, and the funding formula decreases the federal match gradually over time.  In this respect, a tobacco tax is a perfect match for the pre-K proposal.

Turning to the political perspective, one advantage of this proposal is that the financing mechanism makes no new enemies. Cigarette makers will oppose pre-K for all no matter how it is funded. Multiple studies find that quality pre-K reduces the likelihood that people take up smoking. From the industry perspective it is a tobacco control program, and big tobacco relentlessly works to erode public funding for such programs. At the same time, the proposal will enlist another set of allies–those committed to reducing tobacco addiction and the disease and death it causes. They will have two reasons to support the pre-K proposal because both quality pre-K and the tax will reduce smoking.

In the current political environment, some may oppose the proposal because they oppose any tax increase at all.  For those truly committed to limited government and deficit reduction, I have a modest suggestion. Cut welfare for agribusiness, aka farm subsidies, which are inefficient and unfair. Farm subsidies cost taxpayers $10 to $15 billion annually, even though farm income reached all time highs in the last two years. Let the free market operate in agriculture, and split the savings 50-50 between deficit reduction and the President’s pre-K proposal (which, by the way, will eventually start contributing to deficit reduction on its own).  Anyone who says they favor less government intrusion into the market and smaller deficits, but is unwilling to cut farm subsidies, doesn’t deserve to be taken seriously.

Returning to the tobacco tax, it will, without a doubt, require a fight. Big tobacco will use direct lobbying, publicity campaigns, AstroTurf (artificial grassroots front groups), and alliances with think tanks and membership organizations.   They can be expected to try to convince unions to oppose the tax because it is regressive and police organizations to oppose it because it will increase illegal sales (pay no attention to who would have to collude in supplying tobacco products to the underground economy).

Supporters of the proposal should be prepared to build a coalition with anti-tobacco groups as well as businesses that will benefit from lower health care costs and more productive future employees, unions with members who will benefit from better health and access to high-quality pre-K, advocates for lower income children and their families including minorities who have the least access to high-quality pre-K. They might even organize consumer and investor boycotts of tobacco companies who oppose the plan. Altria, which has by far the largest market share for cigarettes, also has economic stakes in beer and wine, allowing even nonsmokers to participate in an effective consumer boycott. Big tobacco has lost this battle before. California provides a battle plan that, when suitably tweaked for a national campaign, can produce another win for pre-K.

– Steve Barnett, Director, NIEER

This entry is cross-posted to The National Journal and is in response to the post “‘Sin Tax’ for Pre-Schoolers” by Fawn Johnson.