Research & Commentary: Idaho’s Tobacco Tax Advantage

Published December 20, 2010

Idaho is expected to face a budget deficit in fiscal year 2012 of approximately $350 million. Idaho House Revenue and Taxation Committee Chairman Dennis Lake (R-Blackfoot) says he wants to increase the state’s cigarette tax by more than $1.50 per pack to help generate more revenue.

Unfortunately for advocates of targeted “sin” taxes such as these, the taxes seldom succeed in preventing future budget deficits and typically result in additional tax hikes on all taxpayers. Tobacco taxes are used to prop up higher government spending but rely on a narrow and shrinking tax base, which creates greater revenue gaps. All taxpayers are then put on the hook for higher taxes in order to make up for the lack of spending restraint.

Idaho’s 57 cents per pack cigarette tax is better right where it is. It is lower than each of its neighboring states’ (Utah’s is close at 60 cents per pack), and the state’s budget doesn’t rely too heavily on this unsustainable revenue source. Idaho should avoid destroying any competitive tax advantage it has; it should protect such advantages.

There are other, more sustainable, ways of balancing the 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.


Oppose a Burdensome Cigarette Tax Hike on the Poor!
The National Taxpayers Union explains how raising Idaho’s cigarette tax will drive consumers from local businesses and hurt lower-income Idahoans. The document notes, “Raising an unreliable tax that heavily burdens the poor makes no economic sense. Instead of pursuing such an imprudent course, Idaho should continue its admirable effort to hold the line on state spending and foster economic expansion through tax reform.”

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 tax increase.

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
This National Taxpayers Union briefing observes, “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.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other tax topics, visit The Heartland Institute’s Web site at and Budget & Tax News at

If you have any questions about this issue or The Heartland Institute, you may contact Government Relations Director John Nothdurft at [email protected] 312/377-4000.