Policy Documents

Policy Tip Sheet No. 2 - Georgia Cigarette Tax

John Nothdurft –
January 19, 2011

Problem

Georgia state Rep. Ron Stephens (R-Savannah) wants to raise the state’s cigarette tax by a dollar per pack in order to help close the state’s $1.5 billion budget deficit. Smokers aren’t the only ones who should be worried about cigarette taxes, because all taxpayers inevitably will be tapped as a result of excessive spending propped up only temporarily by the new revenue.

Policy Solution

Georgia’s cigarette tax is okay right where it is. It is lower than in surrounding states, and the state’s budget doesn’t rely too heavily on this unsustainable revenue source. A state should not destroy the competitive tax advantages it has, whether on incomes, sales, or specific products. Instead, it should defend that advantage.

Georgia should look at other more sustainable ways of balancing its budget:

• Eliminate exemptions and subsidies in order to broaden the tax base and lower tax rates.
• Create an Advisory Council on Public-Private Partnerships and begin privatizing non-core functions of government.
• Implement zero-based or performance-based budgeting.
• Cap taxes and expenditures, ideally tying them to inflation and population growth.
• Empower state employees and Medicaid recipients with health savings accounts.

Policy Message

Point 1.  Tobacco tax hikes do not prevent future tax hikes from hitting taxpayers.

Point 2.  Hiking Georgia's cigarette tax would ignore all the basic principles of sound tax policy and take attention away from the fundamental budget problems that ultimately must be addressed to prevent future deficits.

Point 3.  Tobacco taxes are a notoriously unreliable and dwindling source of revenue, so pinning the hopes of a balanced budget on them is reckless.

Point 4.  Cigarette taxes discriminate against a minority of the population who are predominately moderate- to low-income individuals.

Point 5.  Georgia is seeing increased revenue and economic activity due to having a lower cigarette tax than neighboring states.

Policy Facts

Fact 1:  41 of 59 state tobacco tax increases between fiscal years 2001 and 2006 were followed by tax hikes in the two-year period following enactment. National Taxpayers Union

Fact 2:  After a 17.5-cent cigarette tax increase, New Jersey actually lost almost $24 million in revenues from 2007 to 2008. Budget & Tax News

Fact 3:  According to the Bureau of Labor Statistics, 95.8 percent of tobacco expenditures are made by consumer units (people spending together) who earn less than $150,000 a year. Bureau of Labor Statistics