NCPA - National Center for Policy Analysis

State Tax Trend No. 10: Cigarette Tax Increases Tapering Off

June 15, 2012

While a common recourse for revenue is to raise targeted taxes on unpopular groups, such as smokers, drinkers, gamblers and eaters, recent trends indicate an increasing dissatisfaction with such revenue-shifting, says Joseph Henchman, an attorney and policy analyst at the Tax Foundation.

Looking to cigarette taxes over the last few years, they continue to be increased throughout the states.  However, in-depth analysis indicates that these increases are slowing down, suggesting that taxpayers may have reached a limit on how high of taxes they are willing to impose.

  • As of January 1, 2012, the average state cigarette tax was $1.46 per pack.
  • This is substantially higher than average tax levels in the past: this figure was $1.18 just three years ago, and the current tax rate is roughly 10 times what it was in 1983.
  • Since 2002, 47 states and the District of Columbia have raised cigarette taxes a total of 105 times.
  • However, this trend has slowed down dramatically in recent years: only six states increased the tax rate in 2010, and only three states did so in 2011.

The gradual tapering off in tax increases on cigarettes is certainly not due to a lack of need: state governments are currently hungry for revenues to fill budget gaps.  Rather, it is almost certainly a function of general voter dissatisfaction with higher cigarette taxes -- a sentiment informed by numerous arguments against this form of taxation.

  • By imposing a tax on out-of-state citizens, cigarette taxes lower the cost of government for residents, artificially encouraging greater support for an increased size of government.
  • Cigarette taxes are one of the most regressive ways to fund government programs because low-income earners are much more likely to be smokers.
  • Higher cigarette taxes also mean more smuggling, both between states and from international sources where prices are much lower.

Cigarette tax increases are often justified as a way of compensating society for costs imposed by smokers.  A series of studies, however, argue that nearly all the costs of smoking -- health care, higher insurance premiums, lower productivity at work -- are borne by smokers themselves.

Source: Joseph Henchman, "Trend #10: Cigarette Tax Increases Tapering Off," Tax Foundation, June 4, 2012.

For text:


Browse more articles on Tax and Spending Issues