Tennessee State Rep. Gary Odom (D-Nashville) wants smokers to pay an additional 44-cent tax on each pack of cigarettes to help fund Medicaid expansion.
This proposed tax would be on top of the 62 cents a pack Tennessee smokers are currently paying, under his newly proposed legislation. And that’s on top of $1.01 in federal taxes per pack.
Odom says the tax would bring in an extra $175 million a year, which would go to expand TennCare, the state’s version of Medicaid, under Obamacare.
Justin Owen, president of the Nashville-based Beacon Center, a free-market think tank, says the plan is nonsensical.
“Now we want to raise taxes even more and try to fund a program that is, in itself, unsustainable? It doesn’t really make fiscal sense,” Owen said. “Because Tennessee is situated geographically the way that it is, everyone is within an hour and a half at most from another state.”
Short Drives for Cheaper Smokes
Eight states border Tennessee, and most have lower cigarette taxes. Only Arkansas and Mississippi charge more.
“So it would be very easy for people to go buy cigarettes in other states and pay their taxes and leave us with a deficit to pay for the expansion of a Medicaid program that we just can’t afford,” Owen told Tennessee Watchdog.
Odom didn’t respond to messages requesting comment before publication time.
He told Gannett newspapers, however, the money is “more than enough to offset the state’s eventual share of TennCare expansion, while also taking aim at the harmful effects of smoking.”
Owen told Tennessee Watchdog that Odom’s proposal makes little sense in that regard.
‘A Fiscal Trap’
“It’s illogical to raise taxes to pay for something while also pushing to get less of what you’re taxing. You’re certainly going to wind up in a fiscal trap,” Owen said.
According to the Federation of Tax Administrators, Tennessee currently has the 12th-lowest cigarette tax in the nation.
The Republican-led General Assembly is skeptical of plans to expand TennCare under Obamacare. Many legislators say they worry about the extra money they would eventually have to start paying at the state level, which Gannett reports as $170 million per year.
The eight states that border Tennessee currently charge the following cigarette taxes:
Alabama: 42.5 cents a pack
Arkansas: 115 cents per pack
Georgia: 37 cents per pack
Kentucky: 60 cents a pack
Mississippi 68 cents a pack
Missouri: 17 cents a pack
North Carolina: 45 cents a pack
Virginia: 30 cents a pack
Revenues Would Fall
Even if Tennessee lawmakers were to increase the cigarette tax, it would still fall below the national average among states—$1.53 per pack. Connecticut, for instance, charges a tax of $3.40 per pack, and New York State charges $4.35.
The highest combined state-local tax rate is $6.16 in Chicago, with New York City second at $5.85 per pack, according to the Campaign for Tobacco-Free Kids.
“People will get cigarettes the cheapest way they possibly can,” Owen said.
“There’s a significant black market for cigarettes. By raising taxes, particularly significantly above what other bordering states are situated at, you’re going to end up driving up that black market, and that just means more problems for law enforcement and fewer tax revenues for the state.”
