Cigarette Taxes Do Not Usually Produce Projected Income

Share Button

taxesTaxes are a funny thing.  They can’t be relied on to produce the amount of money governments hope to collect from those who pay.  Over and over again, it has become reality that in most cases the more government taxes something, the less that government receives in the long-run from those taxes.

This was again proven in a recent study by the Thomas Jefferson Institute when it looked at the reality of cities and towns here in Virginia that have increased the cigarette tax.  That study,  Fiscal Impact of Cigarette Tax Increases on Virginia’s Municipalities, uses data published by local jurisdictions as part of their budget process and shows that municipal cigarette tax collections have been flat or falling since FY 2010; that tax hikes increase revenues by less than municipal budget projections would imply; and that tax revenue collection increases are usually fleeting, often turning flat or negative in the years following a tax increase.

This study was done to see if “sin taxes” such as those on cigarettes truly produced the income that local governments hoped would be the case.  In most cases these taxes fell short and, in some cases, produced even less than had been the case before taxes were raised.  Rarely did these particular tax increases bring in more money than projected and in most cases much less. 

Municipal governments relying on increased cigarette taxes to help balance their budgets usually see those projections disappear in a puff of smoke.  This is clearly the case as this new study shows. 

And this study also indicates that these cigarette tax increases are changing consumers’ buying patterns: smokers oftentimes cross over the border to a nearby town or county that has lower taxes and lower prices.  And when a smoker goes to another jurisdiction to buy a carton of cigarettes, that person usually buys others consumer items as well.  That might be only a soda at a convenience store, or it might be the week’s groceries at the super market.  When several dollars can be saved on a carton of cigarettes, it is not hard to believe that the shopper looking for bargains or carrying “food coupons” with him or her will also seek savings on their cigarettes.

The Town of Vinton is the starkest example of this trend. In 2014 Vinton doubled its cigarette tax. But instead of meeting its budget projection of a 43 percent increase in tax revenue, cigarette tax revenues plunged by 17 percent as smokers drove elsewhere to make their purchases.

Worse yet, these taxes hurt that town’s small business community, resulting in the loss of two retailers and the opening of a cigarette outlet just outside the Town limits. This results in a further loss of revenue to the town through reduced sales taxes.

Last month’s election saw three out of four meals tax proposals defeated by an average 57 percent – even in areas where Hillary Clinton garnered 64 percent of the vote. These results demonstrated that Virginians have a high resistance to increased taxes, and when it comes to cigarette taxes, this new study shows that consumers will ‘vote with their feet’ by crossing the border to purchase cigarettes and others items elsewhere.

As municipalities begin the process of developing their budgets for next year, instead of seeking tax increases whose effect can, in most cases, be temporary or even negative, they might be better advised to seek efficiencies in their operations or policies that encourage economic growth rather that those that push business out of the area.

One city that is talking about raising cigarette taxes is Richmond.  This issue became part of its recent mayoral election rhetoric.  As the new mayor considers a budget for next year, he might want to read this new analysis.  A good review of this study ran in the Richmond Times Dispatch and can be found here.

This study was conducted by the Beacon Hill Institute in Boston, Massachusetts, which is currently a part of Suffolk University but will become a self-standing, independent institute on January 1, 2017.  We hope it is helpful to cities and towns as they craft their budgets for next year and think about how to build a stronger economic base in their communities for the future.

Email this author

Facebook Comments
Posted in Taxes | Leave a comment

Workforce training that focuses on unfilled jobs

Share Button

unemployment-office-150x150The Martinsville area, a manufacturinging powerhouse as recently as the 1980s, has become the poster child for Virginia’s rust belt. Unemployment hit 20% during the bottom of the last recession, and still lingers at 6.8%. Ironically, the Martinsville-Henry County area simultaneously suffers from a labor shortage — a shortage of labor with the right skills, that is.

I addressed this issue back in August in “Is It Time to Blame the Victim,” which described the difficulty local authorities had in finding people willing to undergo the training required to fill hundreds of vacant jobs. Now the Martinsville Bulletin has published an in-depth look at the workforce dilemma.

There is a serious mismatch between workforce skills and the jobs available. As of last week, there were 1,325 jobs open in Martinsville and Henry County. Factors influencing the difficulty in filling the positions include the need for daycare, lack of transportation, and the inability of applicants to pass drug tests. “But a skills mismatch and need for training is the problem area officials most often cited,” states the article.

Patrick Henry Community College (PHCC) and the New College Institute (NCI) battle a perception that education is unaffordable. Adults with families to support must make significant sacrifices even to earn a two-year degree.

One possible solution is to award certifications geared to the needs of particular employers, such as the Center for Advanced Film Manufacturing that grooms students for jobs at Eastman Chemical Co. That program offers a paid internship with Eastman and a guaranteed interview with the company. The company has hired more than 90% of the graduates of the program.

PHCC has launched a similar program with Radial, a logistics and distribution company. Kim Smith-Glisson, director of operations in Martinsville, explains the motivation:

As we grew the business in Martinsville/Henry County we did not want to have to continue to relocate our supervisors, our managers, our senior managers externally from outside of the area. We wanted to be able to develop the talent locally and continue to promote from within.

Drake Extrusion, a polypropene fiber manufacturer, announced a $6 million expansion in Henry County earlier this year, creating 30 jobs. CEO John Parkinson said additional job training is a necessity:

We’ve got a lot of people who are willing to apply for jobs, but they don’t really have the technical skills, the problem-solving skills, the ability to use computers on the shop floor and things like that, which is what we’re really looking for these days. Gone are the days when you’re just looking for people who can press buttons and watch machines.

Bacon’s bottom line: Two-year programs have their place, but they often take too long and impose too high a cost on adults who support families while acquiring new workplace skills. Community colleges and career colleges need to develop programs that deliver employers the specific skill sets their employees need. Likewise, employers need to get over the idea that job training is mainly a public responsibility. They need to partner with community colleges and help underwrite the cost of training programs that benefit them.

Meanwhile, Virginia needs to look at the panoply of job training programs — Nine state agencies distribute more than $340 million in federal and state funds for employee assistance and training — to see how effectively their programmatic models align with labor market realities. Are there obsolete and/or ineffective programs that can be shut down and their resources reallocated to programs proven to work?

The McAuliffe administration has sponsored creation of the Go Virginia program to develop a collaborative approach to workforce development involving business, local government and higher education. Whether Go Virginia delivers a focused approach to workforce training and education, or just adds another layer of bureaucracy, remains to be seen. But one thing seems evident: Training Virginians to fill unfilled jobs that already exist should be a lot easier than solving unemployment by recruiting new businesses to invest in the state.

Update: Patrick Henry Community College already has numerous certification programs that require less than a two-year course of study. See comments of PHCC’s Jim Bove here.

(This article first ran in Bacons Rebellion on November 23, 2016)

bacon-90Email this author

Facebook Comments
Posted in Economy | Leave a comment

Virginia shouldn’t waste its unique opportunity to overhaul its school accountability system

Share Button

By Michael J. Petrilli and Brandon L. Wright

pencilVirginia needs to improve its accountability system for K–12 education. A relic of the No Child Left Behind era, it has a critical flaw: It encourages schools to narrowly focus on the progress of their lowest-performing students. That’s a worthy and important objective, but it shouldn’t be the only outcome schools are held responsible for.

This shortcoming is particularly pernicious for high-achieving poor and minority children, students who deserve better and are critical to Virginia’s—and our nation’s—competitiveness. They’re the most dependent on the school system to cultivate their potential and accelerate their achievement, yet that system is failing them. This is a tragedy, particularly at a time when Virginia is struggling to help these students complete college and rise to positions of leadership. For instance, only 32 percent of Black students attending the state’s four-year public universities graduate on time. Meanwhile, the Old Dominion is spending $37 million a year in “remedial education”—high-school level courses that college freshmen take because they aren’t really ready for higher learning.

Thankfully, a new federal law, the Every Student Succeeds Act (ESSA), gives policymakers in Richmond a rare opportunity to set schools on the right trajectory for years to come. They now enjoy far greater leeway to design a school accountability system that will work best for all students by turning annual tests results in reading, writing, and mathematics, and other information, into sound judgments of school effectiveness—what it means to be great school or a failing one.

Specifically, when Virginia submits its new accountability system to the U.S. Department on Education for approval in the coming year, it should include three components that will ensure that all kids count.

First, it should rate schools using a model that gives additional credit for students achieving at a high level—something today’s system doesn’t do. Under ESSA, Virginia must continue to track the percentage of students who attain proficiency on annual tests, but the state is free to give schools incentives for students who earn high marks. Policymakers could, for example, create an “achievement index” that gives schools partial credit for getting students to “basic,” full credit for getting students to “proficient,” and additional credit for getting them to “advanced.”

Second, the system should continue to measure the growth of individual students from one year to the next, but it should make this count for at least 50 percent of school ratings. Under Virginia’s current system, growth doesn’t count toward a school’s summative rating at all, and it isn’t publicly reported. Policymakers ought to correct this immediately. Such measures do a better job of capturing schools’ effect on student achievement than proficiency rates, which are strongly correlated with student demographics, family circumstance, and prior achievement.

Finally, Virginia should signal that high-achieving students matter and report their progress separately, much as it already does for special education students and English language learners. Whether they’re growing or languishing is important to know.

Policymakers in Richmond ought to use their newfound flexibility responsibly. Given their freedom under the new federal law to fix the flaws of the past, now is the time to ensure that all students are receiving the education they deserve. High achievers, especially those growing up in poverty, need all of the attention they can get. But for too long, they’ve been an afterthought—a fate no child should suffer. Let’s not make the same mistake again.


Email Michael J. Petrilli 

Email Brandon Wright

Michael J. Petrilli and Brandon L. Wright are president and editorial director, respectively, of the Thomas B. Fordham Institute.

Facebook Comments
Posted in Education | Leave a comment

Now is the time for immigration deal

Share Button

Border Patrol Agents Monitor US-Mexico BorderWith the election over and Republicans keeping control of Congress while also securing the White House, our nation has an opportunity to finally fix our broken immigration system, secure our borders, and deal with those living in the United States illegally.

To date, both sides have refused to budge on their positions, resulting in no compromises—and neither side getting anything they want. Continued failure to solve this problem will put an unacceptable and unnecessary financial burden on state governments, local governments and taxpayers, who absent congressional action are the ones who pay for education and social services for illegal residents in their communities. (Just educating children not lawfully present in my County of Fairfax, Virginia costs our school system well over $100,000,000/yr!)

After more than a decade of discussion with nothing to show for it, without compromise, nothing will happen.  (Note:  Just because there is a House and Senate controlled by Republicans does not mean that a “Republican only” solution can be passed.  A bill needs 60 votes in the Senate and the Republicans only have 52 Senate seats).  

The time to act is now. I say this as a Republican with a clear record of fighting against amnesty.

Not only was I the first legislator in the U.S. to pass a law requiring people to be legally present in order to get a driver’s license, I also carried the law in Virginia that requires adults to be legally present in the U.S. to qualify for non-emergency taxpayer benefits. In addition, I sponsored the Virginia law that requires all people arrested for crimes to be checked for legal status, and was the primary force behind Virginia’s e-verify law.

So I am no “softie” when it comes to immigration reform.

However, I am also a realist. Practically speaking, it would be impossible to deport all of the 12 million illegal immigrants living in our nation.  At the same time, it is equally impossible that we leave our borders unsecure.  I believe that lawmakers and citizens of both parties can find common ground on this issue, if both are willing to compromise on certain aspects of their positions.  From the conservative point of view, such a compromise must be predicated on two conditions:

  1. Our borders must be secure (via a physical wall, virtual wall, or any other effective solution).
  2. Those with criminal records must be deported.

Only when these two conditions are met—and verified by agreed-upon metrics—should we consider allowing some of those not lawfully present in our country (e.g. those who have paid taxes and/or children who grew up in the US) to remain and acquire some type of legal status.  Such a solution is not perfect from either side’s perspective, but it could actually pass Congress in 2017.  Under this scenario, everyone wins—those here illegally who are law abiding and pay taxes can come out of the shadows, our borders will finally be secure so the tide of illegal immigration will be halted, and criminal illegal immigrants will no longer be allowed to live among us.

You can tell from my record of leadership on fighting illegal immigration, that if I had my way, we would have a wall, the criminal illegal immigrants would, after serving their prison time, be deported and barred forever from re-entry into the US, and all 12 million illegal immigrants would somehow be deported and have to re-petition under the rule of law to get back in.  But I don’t want to complain.  I want a solution!   So I am willing to compromise in order to secure our borders and kick out criminal illegal immigrants.  Now, I am sure that as soon as this article is published there will be Republican nay-sayers who attack this idea because they refuse to accept anything other than 100% of what they want.

But their lack of finding a solution that will actually pass Congress is creating the exact opposite of what they want: de facto amnesty and porous borders. The same thing goes for the inevitable Democrat nay-sayers who will attack this article.  Their demand for nothing but open borders and amnesty for everyone leaves the hard working and otherwise law abiding illegal immigrants nowhere.  Like the Republican nay-sayers, the Democrat nay-sayers refusal to find a solution that will pass is preventing citizens who want to get their loved ones into this country from ever being able to have their children, spouses or parents be legally in the US.  

Further delay is unacceptable.  And without a filibuster-proof majority in the Senate, Republicans have little chance of passing a bill of their own. Compromise is necessary in order for our nation to be preserved.  No nation can survive without borders. The time for action is now.

albo Email this author

Facebook Comments
Posted in Immigration | Leave a comment

Energy Facts and Figures for Dummies, Part IX

Share Button

(This is part IX of this series on energy. We hope it helps the reader better understand the issues facing our country and our state as we endeavor to tackle the problem of providing our citizens and our businesses with their energy needs.)


* Hydropower is generated by harnessing the energy of moving water. Hydroelectric power plants typically channel water through turbines, thus causing them to spin and produce electricity.[758] [759] [760] [761]

Hydropower Dam * More than 2,000 years ago, the ancient Greeks used hydropower to grind corn, pump water, and power other types of machinery. The world’s first hydroelectric power plant was built in Appleton, Wisconsin (U.S.A.), and became operational in 1882.[762] [763] [764] [765]

* Hydropower output typically varies from year to year, because it is dependent upon rainfall and other elements of climate and weather.[766] In 2015, hydropower supplied 2.4% of all primary energy consumed in the United States:

Hydropower Energy Consumption


* In 2015, hydropower generated 6.0% of all electricity produced in the U.S.[768]

* Most large-scale hydroelectric power plants are built on rivers and use a dam to accumulate and release water. This allows the plant to generate varying amounts of electricity as the demand for electricity fluctuates.[769] [770] [771][772]

* Large-scale hydroelectric power plants that use dams can displace surrounding residents, impede the migration of fish, modify water temperatures, and cause other changes to river ecosystems.[773] [774] [775] [776]

* Per the U.S. Energy Information Administration’s Office of Energy Efficiency & Renewable Energy:

Research and development efforts have succeeded in reducing many of these environmental impacts through the use of fish ladders (to aid fish migration), fish screens, new turbine designs, and reservoir aeration.[777]

* Roughly 2-3% of the dams in the U.S. are used to generate hydropower. The rest are primarily used for recreation (35%), fish stock/farm ponds (18%), flood control (15%), public water supply (12%), irrigation (11%), and other uses (7%).[778] [779] [780]

* A 2012 analysis by Oak Ridge National Laboratory estimated that the U.S. could increase its hydropower generation by 15% through adding hydroelectric generators to existing non-powered dams [NPDs]. The analysis “did not consider the economic feasibility of developing each unpowered facility” but noted that:

 many of the monetary costs and environmental impacts of dam construction have already been incurred at NPDs, so adding power to the existing dam structure can often be achieved at lower cost, with less risk, and in a shorter timeframe than development requiring new dam construction.[781]

* Hydroelectric power can also be produced without dams by “run-of-the-river” generators, which temporarily divert a portion of the river through canals or pipes that flow through turbines.[782]

* A 2006 analysis by Idaho National Laboratory estimated that U.S. rivers and streams have an average hydropower potential of 297,436 megawatts. The analysis also estimated that:

  • 8% of this total potential is being harnessed.
  • 33% of this total potential cannot be developed because of environmental and land use restrictions, lack of accessibility, or because it is located large distances from electrical power grids.
  • 33% of this total potential could feasibly be developed.
  • 8% of this total potential could be harnessed without using dams.
  • 4% of this total potential could be harnessed without using dams and without using sites that have low-power potential, which makes them economically unattractive.[783] [784]


* Wind power is harnessed by converting the energy of natural air movements into mechanical energy used to drive electric power generators, pumps, and mills.[785]

Wind Turbine


* More than 2,000 years ago, the Chinese used windmills to pump water. Around 600 A.D., Persians used windmills to grind grain.[787]

* From 1998 through 2015, the portion of U.S. primary energy supplied by wind grew from 0.03% to 1.9%:

Wind Energy Consumption


* In 2015, wind generated 4.7% of all electricity produced in the U.S.[789]

* Ideally, commercial wind turbines should be located:

  • where average wind speeds are at least 13 miles per hour.
  • within short distances of electrical power grids.
  • far enough away from humans to avoid noise pollution.
  • in places with limited bird traffic.[790] [791] [792] [793] [794]

* Wind speeds fluctuate on an hourly, daily, monthly, and seasonal basis. In wind-rich areas, winds are sometimes not strong enough to drive turbines for days at a time.[795] [796] [797] Per the U.S. Energy Information Administration (EIA):

Even at the best sites, there are times when the wind does not blow sufficiently and no electricity is generated.[798]

Wind generators are subject to abrupt changes in wind speed, and their power output is characterized by steep ramps up or down.[799]

* Power capacity (a commonly cited statistic for wind energy installations[800]) is the amount of electricity that wind turbines produce when operating at full capacity, which occurs when wind conditions are optimal. It is not a measure of actual production.[801] [802] In the U.S. during 2004–2014, actual production from wind turbines was 29% of their power capacity.[803]

* With the exception of pumped hydropower, current technology cannot economically store large quantities of electricity. Thus, utilities must produce enough electricity to meet their customers’ demands on a second-by-second basis.[804] [805] [806] [807] [808] [809] [810]

* Because wind power is intermittent and utility-scale electricity cannot be easily stored, most wind power capacity must be backed-up by other energy sources that can generate electricity on demand, such as natural gas power plants.[811] [812] [813] [814] [815] [816] Per EIA:

Often, wind generation does not coincide with the demand for electric power; wind resources are generally more prevalent overnight, when demand for electric power is at a minimum. In most areas, summer peak demand for electricity coincides with hot afternoons when consumers have turned up their air conditioners – but in many areas, such times are calm and wind resources may be quite low.[817] [818]

* As the amount of wind capacity rises in a given region, so do the challenges and costs of backing up its intermittent energy output.[819] [820] [821] [822]


* Solar power is harnessed by converting electromagnetic energy from the sun into heat or electricity. The current primary solar energy technologies include:

  • thermal collectors, which capture sunlight and covert it to heat that can be used to warm items such as indoor air, tap water, and swimming pools.
  • concentrating power systems, which use mirrors to focus sunlight in order to heat liquids that power electricity-generating steam turbines.
  • photovoltaic (PV) cells, which use layers of semi-conductive materials (like silicon) to convert sunlight directly into electricity.[823] [824] [825] [826]

* In the third century B.C., Greeks and Romans used mirrors to concentrate solar energy for the purpose of lighting torches. In the late 1800s, a French mathematician built the world’s first solar-powered steam engine.[827]

* In 1953, three U.S. scientists built the world’s first silicon photovoltaic cell. This was the first photovoltaic cell that generated enough energy to power common electrical devices. One year later, Western Electric began selling commercial licenses for silicon photovoltaic technologies.[828]

* With the exception of nuclear and geothermal power, all major current energy sources ultimately derive from solar energy. Wind energy arises from sunlight heating the atmosphere, biofuels and fossil fuels are made of organic materials that were nourished by sunlight, and hydropower is driven by the hydrological cycle, which is powered by the sun.[829] [830] [831] [832]

* From 1988 through 2015, the portion of U.S. primary energy supplied by solar power grew from 0.0001% to 0.5%:

Solar Energy Consumption


* In 2015, solar energy produced 0.9% of all electricity generated in the U.S.[834]

* From 1998-2011, the average reported installed price for residential and commercial PV systems declined by about 5-7% per year. Primarily, this was due to technological advancements, economies of scale, and federal, state and local government subsidies.[835] [836] [837] [838] [839] [840]

* In 2009, Jeffrey Punton of Rochester, N.Y., installed 20 solar panels at his home for a cost of $42,480. The federal government and state of New York paid for $29,504 or 69% of these costs.[841] Per a 2012 report by Lawrence Berkeley National Laboratory:

The market for PV in the United States is, to a significant extent, driven by national, state, and local government incentives, including up-front cash rebates, production-based incentives, renewables portfolio standards, and federal and state tax benefits.[842]

* Power capacity (a commonly cited statistic for solar energy installations[843]) is the amount of electricity that solar systems produce when operating at full capacity, which occurs when the sun is directly overhead, the solar panels are perpendicular to the sunlight, the sky is clear, and temperatures are low. It is not a measure of actual production.[844][845] [846] In the U.S. during 2004–2014, actual production from utility-scale solar systems was 17% of their power capacity.[847]

* With the exception of pumped hydropower, current technology cannot economically store large quantities of electricity. Thus, utilities must produce enough electricity to meet their customers’ demands on a second-by-second basis.[848] [849] [850] [851] [852] [853] [854]

* Because solar power is intermittent and utility-scale electricity cannot be easily stored, most solar power capacity must be backed-up by other energy sources that can generate electricity on demand, such as natural gas power plants.[855] [856] [857] [858] [859]

* As the amount of solar capacity rises in a given region, so do the costs of backing up its intermittent energy output.[860] [861]


* Geothermal energy is harnessed by transferring heat from or to the earth. The current main geothermal technologies include:

  • district heating systems, which heat buildings by piping in water from hot springs and reservoirs.
  • power plants, which generate electricity through steam turbines that are powered by steam or superheated water typically piped in from a mile or two beneath the surface of the earth.
  • heat pumps, which cool and heat buildings by transferring heat to and from the ground. In most places, the temperature of the earth at 10 feet underground stays between 50-60°F throughout the year. In the summer, heat pumps cool buildings by transferring their heat into the ground. In winter, heat pumps warm buildings by transferring heat from the ground into the buildings.[862] [863] [864] [865] [866]

* Since ancient times, people have used hot springs for bathing, cooking, and heating.[867]

* The world’s first electricity-generating geothermal plant was built in 1904 in Tuscany, Italy.[868]

* From 1980 through 2015, the portion of U.S. primary energy supplied by geothermal power grew from 0.07% to 0.23%:

Geothermal Energy Consumption


* In 2015, geothermal generated 0.4% of all electricity produced in the U.S.[870]

* Electricity-generating geothermal plants are typically built at sites where geothermal reservoirs are not buried too deeply. In the U.S., such resources are mostly in the western states and Hawaii. [871] [872]

…..To be continued……

Email this author

Facebook Comments
Posted in Energy | Leave a comment