Leaving aside the fact that more than 20 percent of Americans would be gone (or, more likely, extremely irritable), cigarettes bring in significant revenues for state and federal government.
In Fiscal Year 2010, the federal excise tax on cigarettes (currently $1.01 per pack) brought in $15.5 billion in revenue. That money went to fund an expansion of the federal State Children’s Health Insurance (SCHIP) program, which provides funding to states for health insurance for families that do not qualify for Medicare, but are still considered of modest means.
Cigarette sales are a boon to states as well. The tax imposed on cigarette packs varies by state, with Missouri having the lowest tax at 17¢ per pack and New York having the highest tax at $4.35 tax per pack. In 2009, states raked in more than $24 billion by taxing cigarettes and $8.8 billion in settlement payments from tobacco companies (under the 1998 tobacco Master Settlement Agreement).
Hans Bader, counsel for special projects at the Competitive Enterprise Institute, cited a number of studies pointing out, in an admittedly macabre fashion, that smokers also save taxpayers money by dying sooner and more quickly than the rest of the population.
“Smokers actually save the government money, both by dying earlier and thus reduce social security payments, and, to a lesser extent, by dying of relatively cheap ailments like lung cancer, a fairly quick killer, rather than more expensive, lingering ailments,” Bader told The Daily Caller.
In addition to folks extending their lives and adding additional burdens to the country’s already strained entitlement programs, John Nothdurft, director of government relations at The Heartland Institute, added that the government would likely raise taxes on other products if cigarettes were no longer available to tax in order to make up for the lost revenue.
“The federal and state government’s rely significantly on the revenues derived from taxing cigarettes as well as other sins like alcohol, gambling, and soda. If no one used these products anymore government would likely look to make up that revenue elsewhere,” Nothdurft told TheDC. “The better option would be for government to restrain spending to a sustainable level so that we could not only cut or eliminate sin taxes but other taxes as well.”
According to Tax Foundation staff economist Mark Robyn, while the political justification for taxing smoking is for health purposes, the government still wants that revenue.
“It is hard to know if all of a sudden cigarettes were illegal or nobody smoked anymore, that justification would be gone, but they would still want the revenue, but how they would find it I don’t know,” Robyn told TheDC. “Cigarette tax policy is interesting in that it has two competing goals. One is to raise revenue and one is to reduce smoking, so to the extent that it reduces smoking it doesn’t raise revenue.”