Kansas is considering raising taxes on cigarettes by $1.50 per pack, other tobacco products by 680 percent, and liquor by 4 percentage points. Lawmakers often target these products because they are easier to demagogue and lawmakers can promote the taxes as a public health initiative rather than a tax increase.
Proponents of higher taxes on tobacco, such as the American Lung Association, assume higher taxes on products considered detrimental to human health encourage people to quit using them. Currently, Kansas has the 20th-highest smoking rate in the country.
Raising “sin taxes” on products such as tobacco and alcohol, does real harm. It unduly affects those of low and moderate incomes, relies on a declining revenue stream, and hurts small business owners who previously were able to attract consumers from other states thanks to low tax rates.
According to data from the Centers for Disease Control and Prevention, 35.8 percent of Kansas adults who earn less than $15,000 per year are smokers, whereas only 12.6 percent of adults who earn $50,000 or more smoke. This makes increasing tobacco taxes highly regressive and a burden on those who can least afford to pay.
Kansas’ current cigarette tax rate of 79 cents per pack is competitive with each of its neighboring states except for Missouri, which has a much lower tax rate of 17 cents per pack. According to The Wichita Eagle, “The tax increase would raise the smuggling rate in Kansas from about 15 percent of cigarettes consumed to 46.5 percent, says the estimate from the Mackinac Center for Public Policy, a free-market-oriented think tank that annually researches cigarette smuggling in conjunction with the Tax Foundation.”
Tobacco taxes rarely bring in the revenues their proponents say they will. They prop up government spending while relying on a narrow and shrinking tax base, thus creating greater revenue gaps that taxpayers must fill with additional tax increases. This is why states that have higher sin tax rates also tend to have higher overall tax burdens.
Targeted tax increases on products such as tobacco and alcohol disproportionately burdens low-income taxpayers, punishes local businesses, and tends to bring in less revenue than predicted. Kansas should avoid trying to alter people’s behavior through the tax code and instead focus on keeping taxes low by controlling spending.
The following documents offer additional information on cigarette tax hikes.
Ten Principles of State Fiscal Policy
This Heartland Institute 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.”
Proposed Tax Hikes in Kansas Won’t Solve Overspending Problem; Will Hurt Small Businesses
Americans for Tax Reform sent a letter to Kansas lawmakers explaining why raising taxes on cigarettes and alcohol is a bad idea. “Rather than rely on regressive and unstable sources of revenue like cigarette and alcohol taxes, I would encourage you to consider solutions like those proposed by the Kansas Policy Institute and their 5-year state budget plan,” the letter stated. “Under KPI’s calculations, state spending could increase at a reasonable but constrained rate while continuing to implement the 2012 and 2013 tax reforms as written in statute, not raising taxes, and producing healthy ending balances.”
Research & Commentary: Top Ten Reasons Not to Raise Tobacco Taxes
John Nothdurft of The Heartland Institute argues targeted tax increases serve only to push sound fiscal policies and real budget reforms to the public policy backburner. Legislators concerned about the public health effects of tobacco should encourage the use of readily available smoking cessation products and services instead of supporting bad tax policy.
Republican Governors Unwisely Seeking “Sin” Tax Hikes
Lee Schalk of the National Taxpayers Union says Republican governors such as Sam Brownback of Kansas and John Kasich of Ohio should stop trying to raise sin taxes. “Unfortunately, states taking aim at tobacco to fill budget gaps or pay for tax cuts is extremely problematic,” Schalk wrote. “History has shown that revenue projections from cigarette tax increases come up short. According to National Taxpayers Union’s latest cigarette tax study, roughly 7 out of every 10 state-level tobacco tax hikes enacted between 2001 and 2011 resulted in lower-than-anticipated revenues.”
Sin Taxes: Size, Growth, and Creation of the Sindustry
Adam Hoffer of the Mercatus Center explores three criticisms of sin taxes. First, taxing selected goods for general budget revenue contradicts the standard Pigovian social welfare argument. Second, the economic burden of sin taxes falls disproportionately on low-income households. Third, the expanding number of goods being taxed in this way results in unproductive and preventive lobbying.
Five Things to Consider Before Raising Tobacco Taxes: A Review of the Research
This Heartland Institute Policy Brief argues, “Tax increases above current levels are not justified by appealing to the costs that smokers impose on nonsmokers. Smokers already pay more than this measure could justify.”
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. “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.”
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 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 demonstrates cigarette taxes are regressive, burdening impoverished individuals more than other group.
Debunking the “Tax Thee, But Not Me” Myth: Five Reasons Why Non-Smokers Should Oppose High Tobacco Taxes
The National Taxpayers Union 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.”
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 subject, visit Budget & Tax News at https://heartland.org/publications-resources/newsletters/budget-tax-news, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database at www.policybot.org.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Nathan Makla, Heartland’s state government relations manager, at [email protected] or 312/377-4000.