Connecticut Gov. Dannel Malloy (D) wants to raise the state’s excise taxes on cigarettes to help cover a projected state budget gap of $1.7 billion, or about $472 in debt per Connecticut resident.
In February, Malloy unveiled his biennial budget proposal to lawmakers, including a plan to raise the state’s per-pack excise tax on cigarettes from $3.90 to $4.35, an 11.5 percent increase.
Joseph Horvath, assistant policy director at the Yankee Institute for Public Policy, says many lawmakers misunderstand how people react to cigarette tax hikes.
“There’s a fundamental disconnect with cigarette tax policy,” Horvath said. “People say, ‘Okay, we’ll tax cigarettes and get less smoking.’ But what I think people forget is that you’re not taxing smoking, you’re taxing the person. You may get fewer purchased cigarettes, but not necessarily less smoking.
“You also see decreased revenue for convenience stores,” Horvath said. “People will go in there for their cigarettes and they also buy other things. These convenience stores are going to take a hit on revenue too.”
Horvath says Malloy’s tax hike is not the answer to Connecticut’s financial woes.
“On the one hand, constituents are tired of tax increases, and on the other hand, we have a huge budget deficit,” said Horvath. “I don’t think taxing cigarettes is the way to get out.”
Rajeev Goel, a professor of economics at Illinois State University, says sin taxes—excise taxes on products or behaviors lawmakers say they want to discourage—are a convenient tool for grabbing cash.
“Sin taxes have been traditionally quite attractive instruments for lawmakers to raise tax revenues because of the low demand responsiveness of the products involved,” Goel said. “However, this ability might be undermined due to greater demand responsiveness in recent years for cigarettes, plus leakages to neighboring lower-tax states.”