Taxpayer Protection Pledge
ATR's Congressional Ratings
An American Agenda: Vote for Your Priorities
Invite Grover Norquist to Speak at Your School or Event
Welcome to Pacific Rim Policy Exchange 2010
INDEX

"We Told You So:" Increased Tobacco Tax Rate Reduces Revenues in Arkansas

From Joseph E. Moser on Tuesday, December 8, 2009 3:52 PM
Add to Reddit Add to Stumbleupon Add to Delicious Add to Digg Add to Facebook Add to Twitter

In February, Arkansas Gov. Mike Beebe signed a law increasing the tobacco tax by 56 cents, bringing the rate to $1.15 per pack. It was estimated that the increase would bring $86 million dollars to the General Fund and the monies were to be appropriated to fund a state trauma system and other health programs. In addition, matching federal Medicaid dollars would be available, amounting to nearly $175 million a year for the programs.
 
But now, in a classic “we told you so” moment, the Department of Finance and Administration predicts that the state will face a $10.3 million drop in tobacco tax collections for fiscal year 2010 starting July 1.
 
Herein lies the fallacy with thinking it would raise $86 million: by discouraging smoking through increasing the cost, the state decreases consumption of the good. This results in less than expected revenues and an under-funded program. In addition, higher tobacco taxes lead to more and more purchases across state lines. Fewer in-state purchases mean fewer dollars in state coffers.
 
In the case of Arkansas, this problem was only exacerbated with the federal excise tax increase on cigarettes by 62 cents a pack which President Obama signed into law back in February. The federal rate now stands at $1.01 per pack -- a rate that is sure to decrease consumption in Arkansas even further.
 
photo credit: onkel wart

Permalink | Email | Print | Tags: TAXES, SPENDING, TOBACCO, BUDGET, TOLDYOUSO, Arkansas

Add a Comment



33097

Add me to the ATR Newsletter list (If you are already on the list, you will not be subscribed a second time.)
Notify me when others comment on this article.