New Cigarette Tax Hike Hits Pennsylvania Consumers

Published September 20, 2016

A new health-related tax hike taking effect in Pennsylvania is increasing the cost of buying cigarettes to help narrow the difference between government spending and revenue.

Pennsylvania lawmakers approved increasing excise taxes on cigarettes in July, from $1.60 per pack to $2.60, a 63 percent increase, as part of a set of tax hikes intended to help fill a projected $1.8 billion budget deficit.

Addicted to Taxes

Elizabeth Stelle, director of policy analysis at the Commonwealth Foundation, says estimates of the new tax’s revenue are overly optimistic.

“You’re definitely going to see a shortfall in revenue, and they’re going to be in another tough budget situation,” Stelle said. “We have an addiction, we’re not addicted to tobacco, but to spending. Every year we raise our spending by more than our economy can handle.”

‘Not Going to Be Enough’
Stelle says the new tax will encourage consumers to buy cigarettes in other states, causing tax revenue to decrease over time.

“Tobacco taxes are not going to be enough,” Stelle said. “More people are going to go out of state to buy cigarettes, more smuggling of cigarettes is going to go on in the state, and possibly more people will be in the welfare system as they find it tougher to fund their habit and other daily needs.”

Michael LaFaive, director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, says the new tax will have unintended consequences.

“There have been few instances where revenue has declined as a result of a cigarette tax increase,” LaFaive said. “I expect the state treasury to raise more money than it did before the tax increase, but unless it estimated a large amount of quitting or smuggling, or both, it’s not going to receive the amount of revenue it thinks it will.”