Thursday, May 06, 2010

The Folly of Using Tobacco Tax Revenues to Fund Essential Government Programs

The Nevada legislature thought it was doing a great thing when it decided to fund a college scholarship program using revenues from the state's tobacco settlement with the major cigarette companies. The Millennium Scholarship program has allowed thousands of Nevadans to go to college who would not otherwise have been able to afford a higher education.

Now, however, the program is threatened, due in part to declining cigarette revenues and therefore, declining tobacco settlement funding.

According to an article in the Reno Gazette Journal: "The Millennium Scholarship program began with great promise a decade ago, when then-Gov. Kenny Guinn proposed using a portion of the money due to the state from the national tobacco settlement fund to fund scholarships for Nevada's brightest high-school students. (The rest of the settlement money was to be used for a variety of health programs.) Guinn reasoned that college graduates were less likely to smoke than non-graduates, so it made a certain sense to use tobacco money to fund the program. More important, Guinn recognized that good students who stay in the state are more likely to remain in the state after graduation, helping to boost an economy in dire need of more college graduates."

The Rest of the Story

While using cigarette tax revenues to fund important government programs may seem like a wise thing to do initially, this story demonstrates the folly of this approach. Eventually, the declining cigarette tax revenue is going to threaten the solvency of these programs. Making important government programs dependent upon continuing cigarette sales is not only bad fiscal policy, it runs counter to public health goals and incentives. It is not appropriate for the government to rely upon high rates of cigarette consumption to fund essential programs. It creates a need for continued smoking, removes any incentive for the state to reduce cigarette consumption, and unfairly balances the budget on the backs of smokers.

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