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Tobacco Taxes

States can raise hundreds of millions of dollars in new revenue by increasing tobacco taxes.
Every state that has significantly raised its cigarette tax rate has experienced a major increase in state revenue. Ohio raised more than $280 million in one year after its 31-cent per pack tax increase was implemented. Annual tobacco tax revenues grew by $134 million in Connecticut, $280 million in Indiana, and $100 million in Washington from tax increases implemented in 2002.1 In the first year after raising its tax from eight cents to $1.50, New York City experienced a nine-fold increase in revenues to $250 million­—significantly more than expected.2
Higher tobacco taxes save thousands of lives by reducing tobacco use, especially by teens.
Research has consistently documented that smoking declines when cigarette prices increase—especially among teens and people with low incomes. Internal tobacco industry documents show companies recognize that tax increases reduce their sales—especially among youth—and have admitted this in their filings with the U.S. Securities and Exchange Commission since the early 1980s. Indeed, tobacco companies oppose state cigarette tax increases because they result in lower smoking rates and pack sales.
States that have increased tobacco taxes have had only minor problems with cigarette smuggling and tax evasion.
All major studies have shown that smuggling and tax avoidance are relatively insignificant problems. Cigarette smuggling, cross-border cigarette purchases, and Internet sales account for not more than five to ten percent of all cigarette sales.3 A California study found that after the state’s 50-cent cigarette tax increase went into effect in 1999, fewer than five percent of all continuing smokers were avoiding the state’s cigarette tax.4 It is also worth noting that the smuggling and tax avoidance that followed New York’s 55-cent tax increase in 2000 did not discourage the state from adding another 39 cents in 2002, bringing the tax to $1.50 per pack—nor did it prevent New York City’s eight cent supplementary local cigarette tax increase to $1.50 per pack the same year.
Americans strongly support increasing tobacco taxes.
Poll after poll has shown strong support for increased tobacco taxes in every region of the country. More than 30 different state polls conducted across the country since 2002 report that Americans favor tobacco tax increases of 50 to 75 cents per pack. Even in the tobacco-growing state of Kentucky, 60 percent of voters favored a 75-cent per pack tax increase. In most states, voters favor the tax increase by at least a two-to-one margin. Every poll in every state found at least majority support among Democrats, Republicans and Independents. And in nearly every state, a large majority preferred a state tobacco tax increase over any other measure that would significantly increase taxes or cut programs.
Since 2002, 42 states have increased their tobacco taxes.
Since 2002, the average state cigarette tax has increased from 62 cents to one dollar per pack. Forty-two states (AL, AK, AZ, AR, CO, CT, DE, GA, HI, ID, IL, IN, KS, KY, LA, ME, MD, MA, MI, MN, MT, NE, NV, NH, NJ, NM, NY, NC, OH, OK, OR, PA, RI, SD, TN, TX, UT, VT, VA, WA, WV, WY) have raised cigarette taxes. Of these, Arizona, Colorado, Montana, Oklahoma, Oregon, South Dakota and Washington increased tobacco taxes by statewide referendum. Most of the recent tax increases were quite large—60 cents or more per pack. Eighteen states more than doubled their tobacco taxes. Tennessee raised its tax for the first time in 33 years. Tobacco taxes now range from South Carolina's seven cents per pack to New Jersey’s $2.58. Twenty-one states and the District of Columbia have tobacco taxes of one dollar per pack or more.5

This policy summary relies in large part on information from the Campaign for Tobacco-Free Kids.

Endnotes
  1. Orzechowski and Walker, “Tax Burden on Tobacco,” Economic Research Service, U.S. Department of Agriculture, 2004.
  2. Eric Lindblom, “Raising Cigarette Taxes Always Increases State Revenues and Always Reduces Smoking,” Campaign for Tobacco-Free Kids, August 4, 2004.
  3. Matthew Farelly, “State Cigarette Excise Taxes: Implications for Revenue and Tax Evasion,” RTI International, 2003; Yurekli and Zhang, “The Impact of Clean Indoor-Air Laws and Cigarette Smuggling on Demand for Cigarettes: An Empirical Model,” Health Economics, 2000.
  4. Sherry Emery, “Was there significant tax evasion after the 1999 50 cent per pack cigarette tax increase in California?,” Tobacco Control, June 2002.
  5. Katie McMahon, “State Cigarette Excise Tax Rates and Rankings,” Campaign for Tobacco-Free Kids, September 1, 2006.
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