States may have good reason to be addicted to cigarette taxes

interns Contributor
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What would happen if everybody just stopped smoking?

In theory, that’s the purpose of imposing a cigarette tax: discouraging people from damaging their health by smoking.

But on Monday, the New York state legislature passed a bill that raised the state tax on a pack of cigarettes by a $1.60, giving it the highest cigarette tax of any state in the country, at $4.35 per pack. It was an emergency bill passed explicitly for the purpose of increasing revenue.

Now analysts see something of a conundrum: Cigarette taxes are meant to discourage smokers, but if everybody stopped smoking, states with the taxes would lose millions of dollars in revenue. New York would lose billions.

Let’s take a look at the three states with the highest cigarette taxes and how much money they would lose if cigarette taxes achieved their stated purpose and convinced everyone to stop smoking.

In first place, starting July 1, is New York. The New York Times reports that the increased tax is expected to raise 440 million dollars. Even before this tax hike, New York had the third highest cigarette tax. In 2007, the last year for which data is available, the state generated 1,105,120,000 dollars, according to data analyzed by The Urban Institute-Brookings Institution Tax Policy Center.

In second place is Rhode Island, whose $3.46 tax on each pack of cigarettes netted it $119,867,000 in 2007.

In third place is Connecticut, with a three-dollar tax that generated $253,774,000 in 2007.

New Jersey’s $2.70 tax and Hawaii’s $2.60 tax are the runners-up. The state with the lowest cigarette tax is South Carolina, which charges only 7 cents per each pack of cigarettes.

Cities in Alabama, Illinois, Missouri, Tennessee, Virginia, and New York are permitted to levy an additional tax on cigarettes that is added to the state tax. The most expensive pack of cigarettes, as of July 1, will likely be found in New York City, where the tax per pack will be a whopping $5.75. This is drastically higher than the second highest tax: $3.66 in Chicago.

State and local governments, it seems, can’t help but hope that people keep smoking, even if it is to the detriment of citizens’ health.

But according to the Campaign for Tobacco Free Kids, in this case, even if state and local governments act purely out of self-interest, there is still the added benefit of a decrease in cigarette consumption. Data they collected between 2006 and 2008 showed that states that increased their cigarette tax by more than 50 cents had “large revenue increases in the following 12 months (compared to the prior 12 months) despite related consumption and pack-sale declines.”

According to Jessica Guilfoyle at the Campaign for Tobacco Free Kids, the decrease in cigarette consumption is a result both of smokers quitting, and fewer people starting smoking.