Despite Good Intentions, Prop EE Won’t Advance Equity
By Kathy White
This year, Colorado voters are being asked to increase taxes on tobacco and create a new tax on vaping products. The measure, called Prop EE, would raise revenue for preschool and prevent general state budget cuts.
Sounds like a simple equation, right? Tobacco + teen vaping = Bad. Preschool + kids = Good. Prop EE = problem solved! Well, not so fast.
It might seem simple, but in evaluating Prop EE, it becomes more complicated when looking at this measure as tax policy. That’s when Prop EE just doesn’t square.
We all know that tobacco and vaping result in poor health outcomes. Use of these kinds of products also drives up the cost of health care for everybody, but particularly the people who use them. We know that Colorado has the highest rate of teen vaping in the country, likely in part because there is no current tax on vaping products. And we all know that young people are particularly sensitive to price increases, so when the price goes up for tobacco and vaping products, use among teenagers goes down.
We also know that preschool is good for kids and believe that every kid – whether they’re Black, white, or Brown – deserves the opportunity to get a head start on kindergarten. When they do, all sorts of economic benefits follow them around for a lifetime.
The policy goals of Prop EE are not the problem (or at least not the sole problem). It’s the tax side of Prop EE that isn’t solved by the spending side of the EE equation. In other words, the combination of who pays the tax and how the revenue is spent makes Prop EE inequitable. Let me explain.
Tobacco taxes are what’s known as “corrective” taxes. They are meant to correct for internalities (e.g. the effect of nicotine on people’s health) or externalities (e.g. the cost of health care rising for non-smokers too), that aren’t captured by the price of the taxed item or activity on its own.
Think pollution, smoking, alcohol. These things have broader associated costs (cancer, drunk driving accidents, asthma) that aren’t captured in the price of tobacco, alcohol, or fossil fuels. Corrective taxes are both intended to alter behavior and to correct for the imbalance between the price of, say, a pack of cigarettes, and the true price paid.
Governments use corrective taxes all the time and have lots of choices in how to use the revenues captured from them. But how they choose to do so can affect whether or not the tax policy change fosters equity.
Tobacco taxes start out inequitable because they are regressive, meaning the “burden” of who pays the tax falls more heavily on people who earn low incomes because they are more likely to use tobacco products and to spend a higher share of their income on them. Adding to that is the longtime practice by tobacco companies of explicitly racist marketing to low-income Black and Brown neighborhoods. Today, Black, Brown, Indigenous and other people of color are more likely to use these products and be affected by this tax. Increasing the cost, as Prop EE does, just amplifies the inequity.
However, the inequity of the tax side of the equation can be mitigated by the spending side. For example, if the revenue collected from tobacco and vaping taxes is used to cover the increased social and health costs associated with tobacco use and vaping or otherwise benefits the same population, the policy strikes some balance. People who earn low incomes and people of color would then be more likely to pay but also more likely to reap the benefit.
If Prop EE were paired with spending on smoking cessation, health care for communities of color, or even free preschool for low-income kids of color first, there might be greater balance. But that is not the case.
Prop EE takes the revenues raised from mostly Black, Indigenous, Latinx, and other people of color who earn low incomes and puts it toward a general government service: preschool for all 4-year-olds. That service, while an important goal, is more likely to benefit higher-income people who are much more likely to be white.
This policy is not quite as extreme as raising the tobacco tax to finance a general income tax cut that would disproportionately benefit the richest Coloradans (looking at you, Prop 116), but you get the idea. It’s like asking low-income people of color to pay to send the kids of their higher income, white peers to preschool for free, widening a race equity gap that already exists.
Designing equitable tax policy demands attention to both sides of the equation – how the money is raised and how it is spent. We can enhance tax equity through the tax itself, the spending of the revenue, or the balancing of the two. For instance, a financial transaction tax or wealth tax could enhance the overall equity of our tax system through the revenue side alone, even if the spending was used for a general government service. The equity comes through the tax itself because it changes the distribution of who pays taxes to be fairer.
How the revenue is spent can also boost equity. For example, if the revenue from a financial transaction tax was used to fund opportunities for people who earn low incomes or to redress historic wrongs, it would reverse some of the barriers to wealth that Black, Indigenous, Latinx and other people of color face every day as the result of policy.
Equity can also be found in the balancing of the two sides of the equation, which is the best practice for tobacco taxes and other kinds of taxes with very extreme distributional impacts.
But Prop EE doesn’t do this. It starts with an inequitable tax, adds an inequitable spending plan, and results in a measure that violated our principle of equity and we couldn’t support.
Moreover, Prop EE’s formula for linking a continuous need with a diminishing source of revenue doesn’t add up. Colorado will always have a steady stream of 4-year-olds who need preschool. One of Prop EE’s goals is to curb, and ideally eliminate, tobacco use and vaping. In that way, Prop EE couples a shrinking source of revenue to a growing expense and is therefore unsustainable over time. This violates our principle of sustainability.
Prop EE didn’t make it through CFI’s race equity framework for evaluating tax policy because it didn’t meet our principles of equity and sustainability. Of course, we believe in the public health goals of the measure, but this is an issue about intent versus effect. The intent of Prop EE is good and necessary, but the effect is racist and unsustainable.
Moreover, there are much more equitable ways to fund those goals, like a progressive income tax (like a Fair Tax, which we were all sad did not make the ballot this year). We also understand the urgency of the challenges our state faces, including the looming state budget cuts and the need for quality affordable preschool for all our kids.
Colorado’s unique constraints of TABOR make doing good tax policy difficult in the best of times and impossible in the worst of times. But if we keep approving incremental measures that make our tax code more upside-down and racist, all we have is a more upside-down, racist tax code. We must all center equity and anti-racism in our tax policy debates and start fighting together for those policies that are equitable at their root, in their product and for the whole. It’s not a radical idea but one long overdue.
