Why Are States Raising Cigarette Taxes?

Ronald L. Scott

More than twenty states and some cities are considering raising excise taxes on cigarettes, and some have already done so. In the first quarter of 2001, state cigarette excise taxes ranged from a low of 2.5 cents per pack in Virginia to $1.11 in New York, and only three states charged $1 or more. But the state of Washington recently increased the state’s tax to $1.425, a proposal that won approval of voters last November. Cigarettes will now sell in Washington for about $5 a pack. At least six states now charge $1 or more in excise taxes. New York City is proposing significant increases in city taxes on cigarettes. New York Mayor Michael Bloomberg has proposed a city tax of $1.50, and the state of New York recently raised the state tax from $1.11 to $1.50. The retail price of cigarettes in New York City could be about $7 per pack if the city tax increase passes. And the federal excise tax was recently increased by 5 cents to 39 cents.

A recently released Texas study conducted by the UT Health Science Center partly explains the recent popularity of cigarette tax increases. The study found that Texans overwhelmingly support increased tobacco taxes to generate needed state revenues compared to other types of tax increases. To be fair, cigarette taxes may be the "least-hated" taxes rather than the "most-loved" ones. But support for necessary taxes crosses all political party lines. Three out of four Texans said they would support an increase in taxes on tobacco products if the Legislature were unable to balance the state’s budget for the following two years. By comparison, less than 20% would support an increase in sales tax, and about 11% would support an increase in gasoline taxes.

Public health advocates support increasing cigarette taxes as a way to reduce smoking, particularly by underage smokers. One study found that a 10% increase in the retail price of cigarettes results in a 10% decline in youth smoking. A 10% price increase decreases adult consumption by 3%-5%. See Effects of Price and Access Laws on Teenage Smoking Initiation: A National Longidtudinal Analysis, Tauras JA, O'Malley PM, Johnston LD (April 2001), available at http://www.impacteen.org/access.htm.

The tobacco industry argues that cigarette excise taxes are regressive, hitting poorer people harder since they are more likely to smoke. One counter argument is that poor smokers are more likely to benefit from publicly funded health care programs. Some advocates of price increases defend the increases on the grounds that only people who voluntarily choose to smoke bear the increases.

Increasingly, critics are complaining that states are not raising cigarette taxes to capitalize on the public health benefits of higher prices, but simply to raise additional revenue from an easy target. As evidence, they note that few states have devoted significant amounts from the additional revenues to tobacco prevention and control efforts. Where states fail to properly fund prevention and control efforts, this criticism is valid. It is clear that effective prevention and control efforts require comprehensive programs. Such programs must include public education, enforcement efforts directed at preventing access to tobacco products by minors, and support for adult and youth smoking cessation programs. Higher-priced cigarettes do reduce demand, but only increasing taxes is not a panacea.