NCPA - National Center for Policy Analysis


September 7, 2007

For a lesson in vice, taxes and diminishing returns, one only needs to look at New Jersey's cigarette tax, says the Wall Street Journal.


  • Last year New Jersey raised its cigarette tax to $2.575 per pack -- the highest state levy in the nation.
  • Governor Jon Corzine predicted the tax increase of 17.5 cents a pack would fetch $30 million in revenue to help balance the state's $1 billion deficit. 
  • But a new analysis by the Center for Policy Research of New Jersey finds the state collected $23 million less revenue from tobacco taxes in Fiscal 2007 than it did the year before.

Something similar is going on all over the United States, where cigarette taxes have on average tripled in the last decade, but treasuries aren't getting the revenue boost:

  • For consumers, tax-free online cigarettes are only a mouse click away and these purchases now cost the states more than $1 billion a year in lost tobacco taxes, according to the Campaign for Tobacco-Free Kids.
  • Washington state, which levies a tax of $2.03 a pack, loses an estimated $200 million a year to out-of-state purchases, according to the Seattle Times.
  • Californians smoke 300 million untaxed packs of cigarettes a year thanks to the Internet, smuggling and out of state sales.

The revenue losses will prove to be a special problem for states planning to raise cigarette taxes to pay for expanded government health-care coverage, says the Journal.  The new spending commitments will be permanent and rapidly expand, while the revenues from tobacco taxes will decline.  Ultimately, when you tax something, you get less of it.  If only politicians kept that in mind when they were taxing work, investment and saving -- as opposed to "sin."

Source: Editorial, "Dope Smokers," Wall Street Journal, September 7, 2007.

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