Policy Documents

Kansas Can’t Afford A Cigarette Tax Hike

October 30, 2008

The Kansas Health Policy Authority’s recommendation to use a 75-cent cigarette tax increase to pay for health costs should be worrisome—not only to smokers, but also to non-smokers and fiscally responsible legislators as well.

The approach may seem appealing at first, but such tax increases are notoriously unpredictable and regressive. Funding a high-profile need such as health care with a cigarette tax increase is particularly hazardous because it ties an inherently unstable tax to an increase in government spending.

A big question mark hovers over how much revenue the proposed cigarette tax hike would actually bring into the state’s coffers. According to the Center for Policy Research of New Jersey, since that state’s cigarette tax was raised 17.5 cents two years ago, the state has actually lost $46 million in tax revenue.

Many other states have seen lower-than-projected revenue returns after cigarette tax hikes were put in place. This is a result of the general decline in tobacco use nationwide, cross-border shopping, Internet sales, smuggling, and other factors that are causing cigarette tax revenue streams to flatten.

If Kansas legislators were to hike cigarette taxes to fund health care programs, they soon would be stuck having to choose between rolling back the funding for health care or raising other taxes. A recent National Taxpayers Union study found legislators usually do the latter. “Taxpayers face a seven out of 10 chance of seeing another net annual tax hike within two years of a tobacco tax hike,” the group reported.

Cigarette tax increases also unduly burden low-income taxpayers and punish local businesses.

The following articles offer additional information on cigarette tax hikes.

 

Cigarette Tax Hikes Burn Hole in State Coffers
http://www.app.com/article/20081012/OPINION/810120325/1030/OPINION
Gregg M. Edwards, president of the Center for Policy Research of New Jersey, an independent nonprofit organization that addresses public policy issues facing New Jersey, reports how his organization found that New Jersey brought in less revenue after its cigarette tax hike than was coming in before it was implemented.

Debunking the “Tax Thee, But Not Me” Myth: Five Reasons Why Non-Smokers Should Oppose High Tobacco Taxes
http://www.ntu.org/main/press_issuebriefs.php?PressID=1001&org_name=NTU
According to the National Taxpayers Union, “the per-capita state and local tax burden in high-tobacco tax states is 8 percent above the national average, while the general tax bill for residents of low-tobacco tax states is 15 percent below the national average.”

Poor Smokers, Poor Quitters, and Cigarette Tax Regressivity
http://www.heartland.org/policybot/results.html?articleid=19564
Dr. Dahlia Remler, with the Department of Health Policy and Management at Columbia University, rebuts the argument that cigarette taxes are not regressive.

Tax Hikes Often Fail to Generate Expected Revenues
http://www.heartland.org/Article.html?articleId=22891
Economists warn tobacco taxes are an unpredictable source of revenue.

Six Reasons Not to Raise Tobacco Taxes
http://www.heartland.org/Article.html?articleId=13816
Economist Dr. William Anderson of the Oklahoma Council of Public Affairs outlines six pitfalls of higher cigarette taxes.

Tobacco: Regulation and Taxation through Litigation
http://aei-brookings.org/admin/authorpdfs/redirect-safely.php?fname=../pdffiles/regch2.pdf
Professor Kip Viscusi breaks down the social costs of smoking, taking into consideration a wide array of factors including health costs, sick leave, and the lower pension and nursing home care costs incurred by smokers.

Cigarette Tax Burns the Poor
http://www.beaconhill.org/Portal/PDFVerClips/HeraldOpEd080416CigTax.pdf
David Tuerck, professor of economics and executive director of the Beacon Hill Institute at Suffolk University, outlines how cigarette taxes unfairly burden low-income earners.

Cigarette Taxes Are Fueling Organized Crime
http://online.wsj.com/article/SB121012081570272357.html?mod=opinion_main_commentaries
Patrick Fleenor, chief economist for the Tax Foundation, shows high cigarette taxes have fueled organized crime and a profitable black market in New York.

Cigarette Tax Burnout
http://online.wsj.com/public/article_print/SB121841215866128319.html
Last year Maryland increased its cigarette tax to $2 a pack in order to fund health care ... but now the state’s budget is facing a billion-dollar shortfall. This article outlines the budget mess that always results when states rely on cigarette tax revenues even as smoking rates decline.

 

For further information on the subject, you can visit the Tobacco Issue Suite on The Heartland Institute’s Web site at www.heartland.org.

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Web site, you may contact Legislative Specialist John Nothdurft at 312/377-4000 or jnothdurft@heartland.org.