NCPA - National Center for Policy Analysis


August 4, 2005

Despite a budget shortfall directly caused by cigarette tax increases in Chicago and Cook County, Ill., Gov. Rod Blagojevich (D) proposed a 75-cent hike in the state cigarette tax in his fiscal year 2006 budget, says Mike Van Winkle, a policy analyst at the Illinois Policy Institute.

The 75-cent statewide cigarette tax increase comes on the heels of the Cook County tax increase of $0.82 in April 2004 and the subsequent increase of the City of Chicago, which tripled the tax from 16 to 48 cents a pack.

The Illinois Policy Institute used the State Tax Analysis Mapping Program (STAMP) to assess the potential impact of Blagojevich's proposed 75-cent increase in the cigarette tax. It found:

  • The state could lose as many as 7,878 jobs in 2006, and projected job losses over five years would reach nearly 50,000; the retail industry would take the biggest hit, losing 5,914 jobs in 2006.
  • In just the first year the state would lose $28 million in sales tax revenue and by 2010, the loss would climb to nearly $36 million.
  • Total losses in sales tax revenue would amount to $198 million over the next five years.

These losses stem from the fact that smokers often buy other items when they purchase their cigarettes, like gas, milk and coffee, says Van Winkle. Peter Gill, spokesman for the Illinois Retail Merchants Association, says 40 percent of Illinois consumers live within a half hour of a state border, giving them easy access to stores in other states.

In an effort to pass a budget with a simple majority, the Illinois General Assembly passed its FY 2006 budget without the 75-cent cigarette tax hike. But Van Winkle says backers of a cigarette tax hike are likely to try again.

Source: Mike Van Winkle, "Illinois Dodges Cigarette Tax Hike," Heartland Institute, Budget and Tax News, Vol. 3, No. 6, July 2005; Mike Van Winkle, "Confessions and Consequences," Illinois Policy Institute, March 14, 2005.


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