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Tobacco Taxes: How Many Times Do We Have To Say "I Told You So"?

From Kelly William Cobb on Thursday, March 26, 2009 11:19 AM
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Last month, Arkansas was the latest state to pass a tax hike on cigarettes.  The new $1.15 per pack tax was passed on the heels of President Obama's federal cigarette tax increase and raised the tax significantly higher than neighboring states, which collectively average 63-cents.

Throughout the battle, Americans for Tax Reform and numerous other opponents argued that this tax will never raise the $86 million the state was projecting (here, here, and here).  As It turns out, we were right.

Yesterday, the state's Finance and Administration Director Richard Weiss informed lawmakers that the state will take in $14 million less than projected from the tobacco tax increase - just one month after it passed.  This probably came as a surprise to Governor Mike Beebe (D), who said in his State of the State address that “tobacco taxes are a dwindling revenue stream," but quickly forgot when he began touring the state advocating for the supposed $86 million in new taxes.

Raising cigarette taxes is not only unfair for smokers and small businesses; it's flat out bad public policy. Revenue from tobacco taxes is exceptionally volatile. Smokers, behaving rationally, frequently cross state lines to find cigarettes at cheaper rates. Additionally, tobacco taxes are a declining revenue source that prompts future tax hikes once lawmakers become reliant on the statically budgeted revenue stream.

Moreover, proponents of cigarette taxes show a complete lack of understanding of basic economics.  It is absurd to argue, as most tax hikers do, that a cigarette tax will increase tax revenues and simultaneously decrease the number of people buying cigarettes - when prices go up from a tax, consumption declines, and it takes the new tax revenue with it.  This, by the way, goes for all tax increases.
 
There are 28 states this year looking to smokers to solve their overspending problems.  This includes a proposed 12.5-cent per pack tax hike by Gov. Corzine (D) in New Jersey, where the last time they raised the tax just 17.5-cents they actually had a net loss of $24 million.  And in Maryland, which doubled the tax last year only to see a 25% decrease in cigarette consumption and a 254% increase in cigarettes smuggled across state lines.
 
Lawmakers take heed: taking money out of the pockets of the 20% of Americans who smoke cigarettes will only leave you scratching your head and wondering why your budget problems are worse off than before you raised the tax.

Permalink | Email | Print | Tags: TAXES, TOBACCO, TOLDYOUSO, Arkansas, Maryland, NewJersey

Comments

A little noted feature of the Porkulus bill is the tobacco tax that is supposed to fund SCHIP. Tobacco taxes have been raised, at the federal level, to confiscatory levels (over $23.00 per pound in additional taxes for cigarette tobacco, for example). These raises go into effect April 1- and that is no joke, unfortunately. I am befuddled that there has been no discussion anywhere on this federal tax boondoggle.
>> Moosemeat Thursday, March 26, 2009 1:07 PM Report Comment

Why is it legal to tax a group of smokers, but not legal to tax a group of AIG employees on their bonuses?
>> Gene Thursday, March 26, 2009 4:48 PM Report Comment

Because a cigarette tax is applied to a broad group of people (about 50 million) whereas the AIG applies to 240 people. At least the poor will pay some taxes since they smoke more cigarettes than the wealthy. I guess Obama doesn't consider tobacco taxes a tax as he said on the top 5% will pay more tax. He lied, go figure.
>> Steve Friday, March 27, 2009 2:14 AM Report Comment

Now it's your cigarette's, next it will be your beer, then when they finish with that, hello gas here we come. You ask for it, here it comes. That's what they think about the middle class and the poor.
>> Darold Friday, March 27, 2009 9:29 AM Report Comment

As smokers we are left with only 3 choices that I can think of. -Pay the tax and move on -Quit smoking -or get these www.invisismoke.com I am sure that the Government wants us to choose the first option as they are more worried about our money than our health!
>> Robert Friday, March 27, 2009 9:55 AM Report Comment

Gene, What a stupid question. The tax the DemocRats want to put on AIG is UnConstitutional.
>> Rick Friday, March 27, 2009 12:59 PM Report Comment

why is it only the smokers pay It's EVERYONES tax money they are spending to bailout greedy companies. Lets cut some of those career politican's income, limit their terms and get the foggy heads out of there. TAX FAIRLY ACROSS THE BOARD TO ALL! I'm so fed up with this _ _ _ _ _ _ _ _! They don't have a clue what it is like in REAL America, they have their pension funds and insurance for the rest of their lives. What do they care!
>> chris Wednesday, April 1, 2009 1:14 PM Report Comment

It's time for people start a cartel to grow tobacco because taxes are becoming prohibitive. You'll have to shoot bad debtors, snitches, and cops to protect yourself. Or, maybe you can just pay off the cops, and shoot everyone else.
>> American Conservative Wednesday, April 1, 2009 4:16 PM Report Comment

Taxes on tobacco should NOT go to a State's General Fund. Instead, they should be used for 1) legitimate and effective prevention programs targeted at youth and 2)treatment of those suffering from tobacco-relate illesses. For a State to consider tobacco taxes as a revenue stream is outrageous. Same logic should apply to taxes on alcohol!
>> John Wednesday, September 30, 2009 6:37 PM Report Comment

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