Policy Documents

Research & Commentary: Louisiana Shouldn’t Concede Its Tobacco Tax Advantage

May 13, 2011

Louisiana is considering a proposal for a significant tax hike on cigarettes, smoking tobacco, and smokeless tobacco products. Advocates for raising the tobacco tax contend that having the nation’s third-lowest cigarette tax doesn’t do enough to curb the use of these products.

Although a higher tax rate might encourage some Louisianans to quit using the higher-taxed tobacco products, history shows it is more likely they will move their purchases to states with lower taxes (or stop coming to Louisiana from other states to buy tobacco products) or buy untaxed, smuggled products instead.

Proponents of the tax hike estimate it would bring in $120 million in additional revenues. Experience in other states, however, shows cigarette tax hikes rarely bring the expected amount of revenues, largely because that tax base is both narrow and shrinking. Washington, DC and New Jersey experienced net losses of revenue after raising their cigarette taxes. Once the revenue stream dries up, tax hike advocates will be back looking for more taxes to hike.

Louisiana’s low tobacco tax gives the state a competitive advantage that policymakers should not surrender. Gov. Bobby Jindal has maintained a general opposition to tax hikes, which is especially important with the economy still struggling.

The following documents offer additional information on cigarette tax hikes.

 

Louisiana Is Already Squeezing Taxpayers Enough
http://www.thepelicanpost.org/2011/04/29/letter-to-the-editor-louisiana-is-already-squeezing-taxpayers-enough/
Kevin Kane, president of the Pelican Institute, provides background information about Louisiana government spending and argues the state should not raise its tobacco excise tax. He asks, “Does anyone believe we are getting enough for the $25 billion we are already spending?”

Georgia Cigarette Tax Hike Would Spur Cross-Border, Black Market Sales
http://www.taxfoundation.org/news/show/25967.html
The nonpartisan Tax Foundation explains how raising Georgia’s cigarette tax by $1 per pack would drive consumers from local businesses and transfer funds from lower-income counties to higher-income ones. They note, “Raising Georgia’s cigarette tax from 37 cents to $1.37 would make Georgia’s cigarette tax higher than all of its neighbors.”

Research & Commentary: Top Ten Reasons Not to Raise Tobacco Taxes
http://www.budgetandtax-news.org/article/25987
This Heartland Institute Research & Commentary explains how targeted tax increases on items such as cigarettes delay implementation of sound fiscal policies and real, necessary budget reforms.
Ten Principles of State Fiscal Policy
http://www.budgetandtax-news.org/article/19354
This booklet from The Heartland Institute provides policymakers and civic and business leaders a highly condensed, easy-to-read guide to state fiscal policy principles. The principles range from “Above all else: Keep taxes low” to “Protect state employees from politics.”

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 that the state brought in less revenue after its cigarette tax hike than before the hike was implemented.

Poor Smokers, Poor Quitters, and Cigarette Tax Regressivity
http://www.budgetandtax-news.org/article/19564
Dr. Dahlia Remler of the Department of Health Policy and Management at Columbia University shows that cigarette taxes are regressive, meaning they have their worst impact on lower-income individuals.

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
This National Taxpayers Union briefing notes, “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.budgetandtax-news.org/article/24760
This Heartland Institute Research & Commentary provides a concise rundown of “dos and don’ts” for cutting budget deficits and preventing them from happening in the future.

 

For further information on this and other topics, visit The Heartland Institute’s Web site at http://www.heartland.org, Heartland’s Budget & Tax News site (http://www./budgetandtax-news.org/index.html), and PolicyBot (http://www.policybot.org), Heartland’s free online research database.

Nothing in this Research & Commentary 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 Institute, contact Government Relations Director John Nothdurft at jnothdurft@heartland.org 312/377-4000.