Research & Commentary: Georgia’s Tobacco Tax Advantage

Published December 8, 2010

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 will inevitably be tapped as a result of excessive spending propped up only temporarily by the new revenue.

Targeted tax increases such as these typically fail to fix budget deficits. Many states are suffering the consequences of using targeted tax hikes, massive borrowing, and budgetary tricks to prop up more government spending. Experience in other states shows that once tax revenues from tobacco and other affected businesses begin to fall short of projections, which they commonly do, legislators end up looking for more money from more taxpayers.

The bottom line is that 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 try to destroy any competitive tax advantage 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, such as:

* <>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.

The following documents offer additional information on cigarette tax hikes.

Georgia Cigarette Tax Hike Would Spur Cross-Border, Black Market Sales
The nonpartisan Tax Foundation explains how raising Georgia’s cigarette tax by $1 per pack will 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
This Heartland Institute Research & Commentary explains how targeted tax increases on items such as cigarettes push sound fiscal policies and real budget reforms to the public policy back burner.

Ten Principles of State Fiscal Policy
This booklet provides policymakers and civic and business leaders with a highly condensed yet easy-to-read guide to state fiscal policy matters. It presents the 10 most important principles of sound fiscal policy, from “Above all else: Keep taxes low” to “Protect state employees from politics.”

Cigarette Tax Hikes Burn Hole in State Coffers
Gregg M. Edwards, president of the Center for Policy Research of New Jersey, reports the state brought in less revenue after its cigarette tax hike than was coming in before the hike was implemented.

Poor Smokers, Poor Quitters, and Cigarette Tax Regressivity
Dr. Dahlia Remler of the Department of Health Policy and Management at Columbia University rebuts the argument that cigarette taxes are not regressive.

Debunking the “Tax Thee, But Not Me” Myth: Five Reasons Why Non-Smokers Should Oppose High Tobacco Taxes
According to this National Taxpayers Union briefing, “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
This Heartland Institute Research & Commentary provides a concise rundown of “dos and don’ts” for dealing with budget deficits and preventing them from happening in the future.

For further information on this subject, visit the Tobacco Issue Suite on The Heartland Institute’s Web site,

Nothing in this message 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 Web site, contact Legislative Specialist John Nothdurft at 312/377-4000 or [email protected].