Addicted to Nicotine Taxes

The main claims that politicians make when they raise taxes on cigarettes have been found to be wanting, and very expensively so, by the National Taxpayers Union. The NTU’s Kristina Rasmussen provides “five reasons why non-smokers should oppose high tobacco taxes.” Rasmussen worked from the primary source of actual state budgets.

First, argued Rasmussen, “states with low cigarette taxes tend to have lower overall tax burdens.” Analyzing the 16 states with the highest per-pack cigarette tax, Rasmussen discovered that these same states had a higher “per capita state and local tax burden” compared with the 16 states with the lowest per-pack cigarette tax. For example, New Jersey had the highest cigarette tax at $2.75 per pack; South Carolina the lowest at $.070. New Jersey’s per capita tax burden was $5,234, while South Carolina’s was $3,213. Rasmussen organized both the tax burdens and cigarette taxes in two tables of 16 states. On the high cigarette tax side, overall burdens reached over $6,000 (Connecticut). On the low side, only one state’s overall burden reached $4 ,000 (Virginia).

Secondly, Rasmussen demonstrated that “tobacco tax hikes are rarely used to cut other taxes.” Instead, state and local legislators tended to commingle tobacco taxes “with other tax increases” or “with cuts worth less than” the actual tobacco increase. In 2003, 19 states hiked tobacco taxes; yet, only one of them offset the hike. The only other year since 2001 that a state has offset tobacco hikes was in 2007. This led Rasmussen to conclude that states “don’t refund the revenue” from tobacco taxes—“they spend it.”

Rasmussen next showed that “tobacco tax hikes don’t forestall other tax increases.” Between 2001-2006, “taxpayers faced a 7 out of 10 chance of seeing another net annual tax hike within two years of a tobacco tax increase.” Again, in 2003, 19 states increased tobacco taxes and 15 of them added additional taxes within two years. Rasmussen noted that “many” of the “revenue actions took place during a period of strong economic growth…and hefty budget surpluses.” When the economy is good, then, legislators taxed more.

Rasmussen’s fourth reason for non-smokers not supporting tobacco tax hikes was because “tobacco tax hikes may encourage other tax hikes down the road.” States may implement new spending programs or increase spending on existing programs from the extra taxes collected on tobacco. For example, Rasmussen quoted Arizona Governor Janet Napolitano’s quip, “we need the money from cigarettes.” The governor wanted “to fill a $1.3 billion budget hole” caused by additional “education spending mandates.”

Other proposed programs from other states included health care in California (which was defeated) and the State Children’s Health Insurance Program (SCHIP) through the federal government (also defeated). Rasmussen pointed out the irony in these programs: “schemes that tie dedicated program funding to higher tobacco taxes would make government increasingly reliant on revenues…from the very product…it supposedly hopes to extinguish.” In other words, using cigarette money increases the need for cigarette purchases.

Finally, stated Rasmussen, “tobacco taxes don’t spur economic growth.” The 19 states which hiked tobacco taxes in 2003 actually showed a “lower average growth rate” compared to “those states that did not adopt an increase.” Average GDP growth for all the states in 2005-2006 fiscal year was 3.4, while the average GDP growth for the nineteen tax-increase states was 2.8—a .6 difference.

Phil Harris call your office.

Daniel Smith is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.