Research & Commentary: North Dakota’s Tobacco Tax Advantage

Published February 13, 2015

North Dakota policymakers are considering raising the state’s tax on cigarettes by as much as 250 percent, taking it from a competitive rate of 44 cents per pack up to $2.44 cents per pack. The proposal also would increase taxes on other tobacco products such as snuff, by $2.12 per ounce (353 percent); chewing tobacco, by 57 cents per ounce (356 percent); and cigars, at 50 percent of the wholesale price. E-cigarettes, which currently do not have an excise tax because they do not contain tobacco, are not part of the proposed tax increases.

Proponents of higher taxes on cigarettes, other tobacco products, and e-cigarettes assume higher taxes on these products encourage people to quit smoking. But North Dakota already has the 14th-lowest adult smoking rate in the country while levying the fifth-lowest cigarette tax.

Raising “sin taxes” on products such as tobacco hurts people of low to moderate income the most. According to the North Dakota Department of Health, only 34 percent of adult smokers in North Dakota earn $50,000 per year or more. This makes tobacco taxes highly regressive and a burden on those who can least afford to pay.

A tobacco tax increase also would hurt small-business owners who currently benefit from the low tax rate attracting consumers from other states. North Dakota’s current tobacco tax rates are lower than those in each of its neighboring states.

Tobacco taxes rarely bring in the expected revenues. They prop up government spending while relying on a narrow and shrinking tax base, thus creating greater revenue gaps that taxpayers must fill through additional tax increases.

North Dakota should protect its competitive tax advantages, not destroy them. A state like North Dakota, which has record-low unemployment and a budget surplus, should avoid using the tax code to micromanage business and consumer choices, and instead focus on lowering taxes on productivity, such as the income tax.

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.”

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 back burner. 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.

ATR Opposes Cigarette and E-Cigarette Tax Hikes in North Dakota
Americans for Tax Reform sent a letter to lawmakers in North Dakota explaining why raising taxes on cigarettes and e-cigarettes would be a bad idea. “Despite lower prices, oil extraction will not end, even if it slows,” the letter noted. “As such, calls for higher taxes are extremely premature, especially when they hit those most affected by any sort of economic slowdown: low and middle income residents.”

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 Pigouvian 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 preventive and defensive lobbying by the affected industries.

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!
Using Idaho as an example, the National Taxpayers Union explains raising cigarette taxes will drive consumers from local businesses and hurt lower-income families. “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,” the document states.

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 the poorest individuals the most.

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, The Heartland Institute’s website at, and PolicyBot, Heartland’s free online research database at

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.