Addicted to Taxes: The Only Tax It Might Be Popular to Raise Is the One on Cigarettes

By Robbins, Leslie Teach; Cox, James | State Legislatures, September 2002 | Go to article overview

Addicted to Taxes: The Only Tax It Might Be Popular to Raise Is the One on Cigarettes


Robbins, Leslie Teach, Cox, James, State Legislatures


There's hardly a legislator today who doesn't remember George H.W. Bush's infamous "read my lips" quote. Lawmakers in every state have had "no new taxes" on their lips for the past decade and are determined to respect that pledge.

But times are tough. States dealt with a $37 billion deficit this past year. Legislators tapped rainy day funds, laid off state employees, delayed capital projects and boosted fees. Only four states raised the sales tax. Only Nebraska raised it's income tax. In many states, it wasn't even whispered.

But lawmakers in 32 states have been willing to consider raising cigarette taxes as a means of generating needed revenue, nearly double the bills introduced last session. Even tobacco-growing states like Kentucky, South Carolina and Tennessee looked at the proposal this session. And while tobacco taxes amount to only a small part (1.5 percent to 2 percent) of a state's total taxes, 18 states and Puerto Rico raised them, adding as much as 70 cents to a pack of cigarettes. Seven of those 18 states will use all or part of the money for health projects.

And there could be more. Oregon has a special ballot initiative to be voted on this month. Missouri and Arizona have initiatives to raise tobacco taxes for health projects on the November ballot.

NOT JUST A REVENUE RAISER

Numerous studies, including one in 2000 from the U.S. surgeon general, have found that cigarette consumption goes down when prices go up. Adolescents and young adults are more responsive than adults to cigarette price changes. Cigarette use dropped by almost 19 percent after California passed a 50-cent increase in excise taxes in 1999. Sales went down 20 percent after New York passed a 55-cent excise tax increase in 2000.

In Rhode Island, cigarette tax supporters have used the reduced consumption argument to pass their legislation. Senator Tom Izzo believes that raising the tax on cigarettes unquestionably makes people smoke less. "If we can affect consumption, it means we stand a good chance of improving the long-term health of folks." However, public health advocates are pushing for more than just increasing the cigarette excise tax.

Ideally, they would like to see that money earmarked for health programs, specifically for smoking cessation and tobacco use prevention programs. "Generally, folks will tolerate an increase in a tobacco tax if those dollars are being directed to health programs," Izzo notes.

NOT A PERFECT TAX

Although tobacco taxes have been easier to pass than others in recent years, lawmakers face numerous difficulties. Health care advocates have been pushing hard for legislators to consider the connection between decreased consumption and decreased health care costs. But opponents argue against a tax that singles out one group to pay for programs that may not benefit them.

Small business owners say higher taxes drive customers to Indian reservations or out of the state to buy cigarettes. Indian reservations are a known source of cheaper cigarettes because state and federal taxes don't apply. Similarly, consumers living close to Canada and Mexico can avoid paying high state excise taxes. The Internet not only offers access to inexpensive cigarettes, but also an avenue where minors can buy them.

Recent research from California found that only about S percent of California smokers avoid paying the excise tax by purchasing cigarettes from untaxed or lower tax sources. But officials in nearby Washington say a third of all cigarette sales in their state are illegal (94.8 million packs in 2001).

Washington has passed a law that allows tribes to charge an excise tax and retain the revenue, but it must be used for essential government services including tribal administration, public facilities, fire, police, public health, environmental and land use. …

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