Study Shows Revenue Gains from State Cigarette Tax Increases Far Outweigh Any Losses From Smoking Declines, Tax Avoidance
Statement by William V. Corr Executive Director, Campaign for Tobacco-Free Kids
May 16, 2003
Washington, D.C. — States that increase their cigarette taxes have consistently raised more revenue than they have lost due to smoking declines and tax avoidance efforts, according to a new study released today by RTI International, an independent North Carolina think tank. The study found such revenue benefits for every state that increased its cigarette tax by at least 10 cents a pack between 1990 and 2001. In contrast, the study also found that states that do not increase cigarette taxes actually lose revenue over time due to inflation and declining smoking rates. This report adds to the already powerful evidence that cigarette tax increases provide states with needed new revenue while also reducing smoking and related health care costs. The report should spur lawmakers in southern states, whose cigarette tax rates fall far behind the rest of the nation's, to raise their tobacco taxes to the national average of 69.4 cents per pack to address current budget difficulties and realize the many other fiscal and health benefits. Excluding Georgia, (where the legislature has recently passed a cigarette tax increase), the average tobacco tax among major tobacco producing states is only 7.5 cents per pack – more than 60 cents per pack less than the average among all states.
Contrary to self-serving tobacco industry claims that cigarette taxes can be detrimental, studies show cigarette tax increases do not harm southern state economies. Smokers that quit or cutback spend the money they save on other goods and services. Smuggling and tax evasion in states that raise their cigarette taxes is a much smaller problem than the cigarette companies allege – accounting for less than 10 percent of cigarette sales nationwide. Relatively simple changes to state and federal law could make cigarette tax evasion and smuggling even less significant. In fact, if the lowest tax states in the South raised their tax rates to the statewide average, the financial incentives for cigarette smuggling would largely disappear. As an added bonus, the new state revenues from those tax increases would far exceed what these lowest tax states are currently receiving by serving as suppliers for cross-border sales, internet vendors, and organized smugglers. Significant tobacco tax increases in the low-tax Southern states (which typically have higher smoking rates than other states) would also save tens of thousands of southern kids from ever becoming addicted to tobacco products – or ultimately dying prematurely because of it.
Since January 1, 2002, 29 states, the District of Columbia and Puerto Rico have implemented or approved cigarette tax increases. Preliminary evidence from these jurisdictions confirms that cigarette taxes increase revenues and reduce smoking. Jurisdictions showing substantial increases in revenue despite significant pack sales declines include Massachusetts (75-cent increase to $1.51 per pack), Michigan (50-cent increase to $1.25 per pack), Nebraska (30-cent increase to 64 cents a pack) and Rhode Island (32-cent increase to $1.32 per pack). Michigan, for example, collected $104 million more in cigarette tax revenue in the last five months of 2002 compared to the year before despite a 15.5 percent reduction in cigarette pack sales. Nebraska's 2002 tax increase has produced $10 million more in additional revenues between October 2002 and April 2003 than in the same period the year before. Even in New York City, where the combined state and local cigarette tax rate has increased to $3.00 per pack, the city's tax increase from 8 cents to $1.50 per pack is on track to bring in a quarter of a billion dollars in new revenue over the first year despite sharp declines in cigarette sales.
Tobacco use is the leading cause of preventable death in the United States, killing more than 400,000 people every year. The annual cost of treating smoking-caused disease exceeds $75 billion. Every day, another 2,000 kids become regular, daily smokers, one-third of whom will die prematurely as a result. Cigarette tax increases remain an important – and proven – part of the solution to this public health crisis.
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A complete copy of the findings from the RTI International report, 'State Cigarette Excise Taxes: Implications for Revenue and Tax Evasion' can be found at http://www.rti.org/pubs/8742_Excise_Taxes_FR_5-03.pdf.
For additional information, see the Campaign for Tobacco-Free Kids factsheet ‘Responses to Misleading & Inaccurate Cigarette Company Arguments Against State Tobacco Tax Increases,' which can be found at http://tobaccofreekids.org/research/factsheets/pdf/0227.pdf.