Cigarette Smoke Brings Money

According to a lot of studies of anti-smoking researchers, states could raise more than $9 billion in new incomes if they all will increase cigarette taxes by $1-a-pack.

Researchers added that the higher tax would keep 2.3 million kids from becoming smokers and persuade 1.2 million adults to quit, and even saving one million lives and $52 billion in health costs over the long-run.

Howard Gleckman is a resident fellow at The Urban-Brookings Tax Policy Center, the author of Caring for Our Parents, and former senior correspondent in the Washington bureau of Business Week.

Sin taxes, like this one, are always a two-edged sword. If government wants to increase the state income, it can’t establish a tax so high that it will discourage too many offenders. But a problem would appear, because if all inhabitants quit smoking, or drinking booze, revenues would in the dry up. However, very high taxes will encourage contrabands, of course if neighboring states don’t raise their taxes too. At last, some economists bother that tobacco taxes unfairly target the poor smokers.

Researchers declared that even if every state raises its tax by $1-a-pack, demand for cigarettes remained solid yet—even high taxes won’t discourage many addicted smokers to quit.

They concluded that a 10 percent tax increase would lower, in general, cigarette use by about 4 percent and youth smoking rates by 6.5 percent. Researchers also realized that higher taxes will increase tax abolitions too.

For example when Texas raised its tax from 41 cents to $1.41 in 2007, the quantity of packs sold dropped by 21 percent in the following year, but tobacco tax revenues rose by nearly 200 percent. As Texas, South Dakota also raised its tax by $1 in 2007, and saw that cigarettes consumption fall by one-quarter and revenues double. Also in Maine, a $1 tax increase in September, 2005 generated 75 percent higher revenues, possible because it was much easier for smokers to get their cigarettes in New Hampshire, where the tax was much lower (80 cents in 2006 vs. $2).

However, researchers reported that in every state, higher cigarettes tax decreased the tobacco consumption but raised the states revenue. In addition, states such as New Jersey that already have very high cigarette taxes may not see as big a revenue encouragement from a further increase.