NCPA - National Center for Policy Analysis


February 16, 2007

Across the country, states are putting their treasuries under pressure by adopting smoking restrictions as well as higher cigarette taxes, which appear to discourage people from lighting up, say observers.

According to a tobacco industry study:

  • Just more than a fifth of U.S. adults smoked in 2005, down from about one-fourth a decade ago; because of the downturn, states levied taxes on 2.8 billion fewer packs in 2005 than they did just five years earlier.
  • In 2005, tobacco taxes contributed $13 billion to state budgets; but cigarette tax collections that year were down in 15 states compared with the year or years before; states such as New York, Massachusetts and Illinois are all forecasting a drop in revenue.
  • Similarly, the federal cigarette tax has been bringing in less money each year since 2002; the amount dropped from $8.1 billion in 2002 to $7.7 billion in 2005.

Many state officials are now concerned about the effect of the taxes.  State Sen. David Tomassoni, a Minnesota Democrat who opposes a statewide smoking ban, said he worries about the lost tax dollars.

"The taxes on smoking are being used to fund education, they're being used to fund health care, they're being used to fund real things.  Now, if we eliminate smoking, does it mean that those things go away?" Tomassoni said.

The downturn in revenue won't necessarily cause states any immediate major hardship, because the decline is slow and cigarette taxes represent only a small portion of state budgets.  But with the effects becoming more far-reaching; cigarette and other "sin taxes" may no longer be the reliable and politically expedient way of raising revenue to solve budget problems.

Source: Martiga Lohn, "Cigarette tax habit may kick states," Associated Press/Lawrence Journal-World, February 16, 2007.

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