Cigarette taxes turn a frowned-upon habit into a popular revenue source. But a recent study found that cigarette taxes often lead to other tax hikes later.
The National Taxpayers Union found a 70 percent chance that the so-called sin taxes will not produce the expected revenue, as people buy fewer packs. The taxpayer advocate organization reported that from 2007 to 2011, 25 of 37 cigarette tax increases were joined by other new tax hikes within two years.
NTUF communications manager Douglas Kellogg wrote that “all taxpayers and citizens are affected by the failure of these measures to live up to revenue projections, which leads to new taxes and budget crises.”
Cigarette taxes remain a popular policy tool, however. Massachusetts enacted a $1 increase just before the study was released warning the tax would be ineffective.
The state hopes to use the tax revenues to pay for local roads and aid. The Daily Caller News Foundation reported last month on Illinois’ announcement that its $1 increase failed to meet revenue expectations and left behind a shortfall of $130 million.
The NTUF study notes New Jersey’s 2006 tax hike caused revenue from cigarette taxes to fall by $52 million.
State cigarette taxes are often evaded due to smuggling across state lines. Illinois is bordered by the state with the nation’s lowest cigarette tax: Missouri weighs in at just 17 cents per package. Neighboring Indiana boasts taxes almost $1 lower as well.
National Public Radio’s Boston affiliate noted that all customers need to do is “drive a half hour north of Boston, into New Hampshire, and you can find the same cigarettes for almost half the cost.”
Even worse, Massachusetts is already facing fears of smuggling. Michael LaFaive of free-market think tank the Mackinac Center emphasized how retailers can take advantage of the unpopular laws.
Smugglers often purchase mass quantities of cigarettes in low-tax states. “Typically then the organization will roll semi tractor trains or vans and then distribute the cigarettes to willing buyers at retail stores who know they’re breaking the law, and are happy to do so because they’ll get the smokes at a discount but sell them for the actual retail price as if the tax had been imposed on it,” LaFaive explained.
In May, the New York Police Department arrested a group of Palestinian men with ties to Hamas and other militant Islamist organizations for running a multi-million-dollar cigarette smuggling ring.
Studies have shown that cigarette taxes do discourage smoking, and many have lauded their public health impact
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