Policy Documents

Research & Commentary: Governor's Support for Tobacco Tax Makes No Fiscal Sense

January 7, 2010

Gov. Mark Parkinson's recommendation to use a cigarette tax increase to help cover Kansas's $300 million budget deficit should be worrisome not only to smokers, but also to nonsmokers and legislators who want to be fiscally responsible.

Tobacco tax hikes encourage cross-border shopping and other tax avoidance measures, and they also cause budgeting problems, disproportionately burden low-income taxpayers, and punish local businesses. No one really knows how much revenue the proposed hike would actually bring into the state's coffers.

Other states are already seeing diminishing returns from tobacco taxes as smokers look for ways--both legal and illegal--to save costs. Many states are seeing lower-than-projected revenue returns--New Jersey actually saw its tobacco tax revenue fall after a tax hike--as a result of the general decline in tobacco use nationwide, cross-border shopping, Internet sales, smuggling, and other factors.

If Kansas legislators hike cigarette taxes to make up for years of government overspending, they will soon have to choose between cutting spending 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."

Without sensible spending controls and a commitment to sound tax policies, Kansas will continue to face recurring budget deficits.

The following articles offer additional information on cigarette tax hikes.

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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, reports the state brought in less revenue after its cigarette tax hike than was coming in before the hike 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 this National Taxpayers Union briefing, "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."

Research & Commentary: The Best and Worst Ways to Eliminate a Budget Deficit
http://www.heartland.org/full/24760/
This Heartland Institute Research & Commentary provides a concise rundown of "dos and don'ts" for dealing with budget deficits and preventing them from happening in the future.

Research & Commentary: Top Ten Reasons Not to Raise Tobacco Taxes
http://www.heartland.org/article/25987/
This Heartland Institute Research & Commentary explains how targeted tax increases such as cigarette taxes push sound fiscal policies and real budget reforms to the public policy back burner.

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

Six Reasons Not to Raise Tobacco Taxes
http://www.heartland.org/article/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 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--and now the state is facing a billion-dollar budget shortfall. This article outlines the budget mess that always results when states rely on cigarette tax revenues even as smoking rates decline.

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For further information on the subject, 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, contact Legislative Specialist John Nothdurft at 312/377-4000 or jnothdurft@heartland.org.