States Look To Cigarettes To Bridge Budget Gaps

A cigarette is held between two fingers i i

hide captionIn the United States, cigarette use has been on the decline over the past 50 years, and higher prices tend to drive down sales even more.

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A cigarette is held between two fingers

In the United States, cigarette use has been on the decline over the past 50 years, and higher prices tend to drive down sales even more.

iStockphoto.com

More Information

-The Campaign for Tobacco-Free Kids tracks cigarette tax rates by state.

-The National Conference of State Legislatures gives background on 2009 proposed state tobacco tax increase legislation.

So-called sin taxes are always popular in a recession, and this year is no different.

Higher tobacco taxes have been part of the budget debate in nearly half the states this year, and in some surprising places. Eleven states, including tobacco-growing Kentucky, have raised their cigarette levies. Mississippi did so twice.

A Succession Of Hikes

Picking up two cartons of generic cigarettes at Lakeland Tobacco in Flowood, Miss., smoker Mark Stewflick expressed frustration with his state's most recent price hike.

"Going up again?" Stewflick asked. "Good grief. [It's] definitely going to make me quit."

That's exactly what public health groups want to hear — they advocate higher tobacco taxes as a way to discourage smoking.

Mississippi raised its cigarette tax 50 cents per pack in May. Then the legislature added another 25 cents a pack this month on cheaper cigarettes made by companies that were not part of the state's settlement of a lawsuit against big tobacco firms. Mississippi once had one of the lowest cigarette taxes in the country at 18 cents a pack.

Offsetting Health Costs

State Rep. Cecil Brown (D-Jackson), a member of the Mississippi Legislature's Joint Budget Committee, said the state needs the revenue.

"The Medicaid budget in our state is just about to eat us alive, and a substantial number of people who are on Medicaid are smokers," Brown said. "If people are going to choose to smoke and it's a voluntary activity, and they are costing the other taxpayers in the state money, then they should contribute to the cost."

After years of opposing and vetoing higher cigarette taxes, Republican Gov. Haley Barbour, a former tobacco lobbyist, relented in a year when the state was facing a $400 million shortfall.

Other states that raised cigarette taxes include Arkansas, Hawaii, New Jersey, Vermont and Wisconsin. Florida raised its cigarette tax by a dollar a pack. Rhode Island, too — bringing the total tax there to $3.46 per pack, the highest in the country.

A 'Convenient Target'

Peter Fisher, vice president for state issues at the Campaign for Tobacco-Free Kids, says as state lawmakers grapple with record budget shortfalls, tobacco is a convenient target.

"States are looking for a proven way to raise revenue and also a politically viable way to raise revenue, and cigarette taxes across the board are supported by huge majorities of voters," Fisher said.

On average, less than 20 percent of Americans smoke, so most people are not affected by cigarette taxes.

Frank Lester, a spokesman for the Reynolds American tobacco company, calls it poor policy to single out smokers.

"Tobacco companies don't pay excise taxes; people do. Working Americans pay excise taxes," Lester said. "Clearly those who can least afford additional taxes, particularly during a recession, are being asked to foot the bill."

A Shrinking Revenue Source

Tobacco generated about $19 billion in revenue for states last year, but the Congressional Budget Office warns that this revenue stream cannot be counted on in the future. Cigarette use has been on the decline over the past 50 years, and higher prices tend to drive down sales even more.

Tack this new round of state taxes to the 62-cent federal cigarette tax hike in April, and it's a double whammy for smokers like Robert Smith of Goshen Springs, Miss.

"They've taxed enough. Goodness," Smith said. "When are they going to quit? Enough's enough."

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