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.