Yes on 56

Proposition 56 is a combined constitutional amendment and statute. The statute imposes a new tax on cigarettes and tobacco products, extends the current tobacco tax to cover electronic cigarettes, and directs the money raised from the new tax to cover specific programs; the constitutional amendment exempts the statute from two constitutional provisions (the state’s overall spending cap and the prop 98 guarantee).

—The Constitutional Changes—

* The state Constitution has a cap on spending, passed by the voters as part of the late 1970s tax revolt: the state may not spend more than a certain amount, indexed for inflation and population growth. The last time the voters passed a tobacco tax, they directed the revenue from the tax to specific health-related programs, and they changed the state constitution to exempt the tobacco tax money from the spending cap: the state can spend the amount under the spending cap, *plus* the amount raised by that tobacco tax. Proposition 56 would do the same thing for the tobacco tax revenue it raises.

* The state Constitution requires that, roughly speaking, half of the state’s revenues be spent on schools. Proposition 56 would exempt the new tobacco tax revenue from the school spending requirement, allowing all of its revenue to be spent on health programs.

—The new tax—

Proposition 56 imposes a new $2/pack tax on cigarettes (the existing state tobacco tax is $.87/pack; the federal tax is $1.01/pack), with an equivalent new tax on other tobacco products (the current tax is $1.37, and the new tax would be $2 more).

—The tax extension—

For some reason, the existing tobacco tax does not cover electronic cigarettes or vape pens — probably because they didn’t exist when the law was written, and the la was written in terms of the things which existed at the time.

Proposition 56 extends the *existing* tax to cover electronic cigarettes and vape pens, and of course imposes the new tax on them, as well.

—The spending provisions—

Proposition 56 would direct almost all of its money to health programs, with 5% allocated to administrative costs and an undefined amount directed to replace revenue from the original tax which will be lost if people reduce their tobacco purchases in reaction to the new tax. (This latter provision, while it makes sense economically, makes it hard to tell precisely how much money is going to be sent to which programs.

$48 million would be spent on law enforcement; $40 million on physician training; $30 million on dental disease; and $400,000 on auditing.

82% of the rest would be directed to Medi-cal for general health care services to the poor; that money is in theory allowed only as a *supplement*, not as a *replacement for existing spending*. (To the extent that this is enforceablr, it would seem to lock in Medical spending at at least the current level).

11% of the rest would be directed specifically to tobacco prevention and control programs.

5% of the rest would be directed to medical research into cancer, cardiovascular and lung disease, and other tobacco-related diseases.

2% of the remaining funds would be directed to school programs.

—A word about the official argument against—

The official argument against is a masterwork of cognitive dissonance, in t hat it attempts to simultaneously make the following two arguments:

* Proposition 56 is bad because not all of its money goes to tobacco-related diseases

* Proposition 56 is bad because it cheats schools of their just money.

These views seem difficult to reconcile, at best.

—A word on externalities—

I’m generally opposed to ballot propositions which place particular spending outside the control of the legislature; this strikes me as being a bad idea in that it confines the legislature’s ability to act and makes budgeting much more difficult, and it is problematic because the voters are always looking at *specificic programs* rather than trying to balance *the needs of multiple programs against one another*. I almost always vote against such things.

That said, there is one place where it’s reasonable: when the spending is attached to a tax, and the purpose of the tax is to remedy an externality.

An externality is the side effect of behavior whose cost is not borne by the person engaging in the behavior. The paradigm example of this is water pollution: a tannery which dumps foul liquid in a stream is not bearing the *cost* of its waste disposal, that cost is being borne by the downstream farmers and townies. This is inefficient, and it causes the producer of tannery waste to produce more waste than he would if he had to bear the cost – and makes the people drinking fouled water pay a price which it is not just to ask them to pay.

One of the most economically effective ways to deal with this is via a tax: tax the thing creating the externality, and use the money to pay for helping undo the harm caused by the externality. This forces the creator to internalize the cost and helps protect the innocent from paying the cost.

Smoking produces externalities of this sort: it produces second-hand smoke, and it produces a need for expensive treatment, much of which ends up being subsidized by (or paid for outright), by the state.

So *in principle* a tobacco tax, with the money directed to remedy the harm caused by smoking, is a reasonable thing *even if it ties the hands of the legislature*, as long as the spending lock-in is limited to the income raised by the tax, and as long as the revenue is directed to help remedy the harm caused by the externality.

—Is this tax’s revenue directed to reducing the harm of tobacco smoking?—

This is astonishingly hard to tell.

Some of it clearly is — 11% is directed specifically to tobacco prevention and control, and 5% is directed to medical research into tobacco-related programs. But 82% of the money is directed to Medi-cal in general.

That doesn’t *look like* it’s directed enough to be externality remediation, and that apearance is enough for the authors of the official argument against, who focus much of their argument on this point. But that may be too formalistic; it’s possible that the money will end up being spent largely, or at least predominantly, to address the costs of tobacco consumption.

Medi-cal currently spends on the order of $93 billion *a year*. Proposition 56 is expected to raise between $1 billion and $1.4 billion, and at most 1 billion can be directed to Medi-cal.

So, the question for me is: is 1/93 of Medi-cal’s spending spent on the primary and secondary effects of tobacco consumption?

It seems *overwhelmingly* likely that this is true.

For me, that’s enough. The tax is targeted at an externality-producing activity; the money is allocated in a way which makes it increase the amount of money available for paying for the costs of the externality; and the money which isn’t going to be spent directly on such costs will be spent on things that are delivered to the public the same way that the externality remediation would be.

I can understand, though, that this may not be certain enough for those who need more certainty; this is a place where reasonable people can disagree.

Reasonable disagreement or no, though, I will be voting yes.

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