When you tax a product, people buy less of it or will buy it somewhere else. When people buy less of a product or buy it somewhere else, there is less tax revenue. Therefore, continuously raising taxes on a product is not a logical or effective way of generating revenue. It is so simple that it almost isn’t even worth saying. So why do politicians expect anything else to happen when they raise taxes?

Excise taxes are spun as a convenient way to generate revenue, and are created for states to fund their overspending problems. Alcohol and tobacco are two of the most popular targets for these tax hikes. We have covered this before, and Chicago is the latest to experience the same misguided policy.
It is so bad in the city, that taxes contribute $4.67 per pack to the cost. That is more in taxes alone than most places charge for the total price of a pack. Of the tax, $1.01 goes to the federal government, 98 cents go to the state, $2.00 goes to Cook County, and the city takes 68 cents.  The most recent tax hikes happened this spring.  Four levels of government plan on making money from cigarette sales.
With such localized taxes, buyers have done what you would expect: they changed where they buy cigarettes. Understandably few are willing to pay around ten dollars for a pack in downtown Chicago. Buyers will leave the city, and since for some it’s not much farther they just go to the next county over.    Buyers can then avoid $2.68 of county and city taxes. Many buyers even go farther, with one report showing 3 out of 4 packs smoked in the city come from out of state. This has lead to a 68 percent drop in revenue.
Raising taxes to such a high level helps no one. It disproportionally targets smokers. It hurts small businesses, such as locally owned gas stations and convenience stores, which depend on tobacco sales for a large part of their revenue. Finally, and this is the part that so many policy makers fail to grasp, it hurts the state and its budget. Depending on revenue from raising excise taxes just leaves local governments in a deeper fiscal hole than before.