World Health Organization mulling global cigarette tax.
The World Health Organization (WHO) is considering a global excise tax of up to 70 percent on cigarettes at an upcoming November conference, raising concerns among free market tax policy analysts about fiscal sovereignty and bureaucratic mission creep.
In draft guidelines published this September, the WHO Framework Convention on Tobacco Control indicated it may put a cigarette tax on the table at its November conference in Seoul, Korea.
“First we had doctors without borders,” said David Williams, president of the Taxpayer Protection Alliance. “Now you could have taxes without borders. … This is a new frontier in taxes. If they’re successful with this, consumers and taxpayers should be concerned about what’s coming down the pipe.”
Although WHO does not have any power to mandate taxes on sovereign nations, it is considering two proposals on cigarette taxes to present to member countries. The first would be an excise tax of up to 70 percent.
“The concept was initially proposed by a working group set up by World Bank to explore innovative sources of financing health care and envisions a voluntary action by interested governments to adopt an additional tax levy as part of their regular tobacco excise on each pack of cigarettes consumed,” the WHO said in a January statement. “This would increase the effective excise tax rate on cigarettes towards the WHO recommended level of 70 percent of the retail price and, by generating substantial revenues, could ensure a sustainable revenue stream for financing international health.”
The second proposal is a tiered earmark on packs of cigarettes: 5 cents for high-income countries, 3 cents for middle-income countries, and 1 cent for low-income countries.
WHO has estimated that such a tax in 43 selected high-/middle-/low-income countries would generate $5.46 billion in tax revenue.
“Cynically, the earmark tax is a smart move for the WHO because it’s tiered,” Williams said. “It’s a good way of buying votes in support. We see the same thing in the U.S. in the form of donor states and recipient states.”
Whichever option the WHO ends up backing, “they’re both two big, bad ideas,” said Daniel Mitchell, a senior tax policy fellow at the Cato Institute. Free-market tax policy analysts such as Mitchell and Williams have long argued against such taxes on tobacco, saying they are regressive, ineffective, and counter-productive.
Cigarette taxes hit low-income people. According to the Centers for Disease Control and Prevention, nearly one third of Americans earning less than $15,000 per year are smokers, compared with only 11 percent of those earning more than $50,000 annually. Since cigarette taxes are fixed and not based on ability to pay, they necessarily consume a higher percentage of low incomes.
Critics also argue such a tax increase will not generate more revenue, but push more sales to the black market and counterfeit cigarette producers.
“It’s already huge problem,” Mitchell said. “In many countries, a substantial share of cigarettes are black market or counterfeit. They put it in a Marlboro packet, but it’s not a Marlboro cigarette. Obviously it’s a big thing for organized crime.”
By some estimates, counterfeit cigarette factories in China churn out 400 billion cigarettes annually.
The other concern is mission creep. Tobacco, Mitchell says, is easy to vilify, making it an attractive beachhead from which to launch future vice tax initiatives.
WHO says the “global tobacco epidemic” kills nearly 6 million people each year; 600,000 of these are people exposed to second-hand smoke.”
Update 10:20 A.M.: “The increase of the price of tobacco by national authorities through higher excise taxes is the single most effective way to encourage tobacco users to quit and prevent children from starting to smoke. In addition, it increases the revenue of governments without increasing illicit trade of tobacco,” said Tarik Jasarevic, a WHO spokesman.
“During the Conference of the Parties (COP5) of the Framework Convention on Tobacco Control (FCTC) from 12-17 November in Seoul, the Parties will discuss draft guidelines on Article 6 of the Framework Convention. While the outcome of the discussion cannot be foreseen, Article 6 talks about ‘Price and tax measures to reduce the demand for tobacco.’ It links taxation to the curbing of demand, but does not relate to fiscal benefits. Such fiscal benefits from taxation are not being discussed during COP5. Further, implementation of national tax policies remains the full sovereign right of the Parties.”