By
Tony Romm
Clipping away at a $590 million deficit Rhode Island this April raised its taxes on cigarettes by $1 to $3.46 a pack the highest rate in the country. With the backing of its governor a former tobacco lobbyist Mississippi in May imposed its first tax hike on smokers in more than two decades up 50 cents to 68 cents a pack and is already considering another increase.
For lawmakers scrounging to balance state budgets in a recession tobacco taxes were one of the most popular options on the table this year. Seven states Arkansas Florida Hawaii Kentucky Mississippi Rhode Island and Vermont tapped smokers wallets to help fill their budget gaps up from two states in 2008. More than 20 additional states debated whether to follow suit according to the National Conference of State Legislatures.
But there are growing signs that tobacco which generated about $19 billion for states in revenues from sales and excise taxes last fiscal year might not deliver the new money state lawmakers are hoping for.
In a double-whammy for smokers the federal government on April 1 also imposed a 62-cent increase in its cigarette tax raising it to $1.01 a pack and a bill that President Barack Obama is expected to sign this month would provide the
Food and Drug Administration (FDA) sweeping authority over the tobacco industry. Together the two federal moves are likely to depress cigarette sales already in decline that every state counts on for extra cash.
According to the
Tax Foundation a nonpartisan research group the federal hike in cigarette prices could hold down sales and dent states tobacco tax receipts by $1.6 billion next fiscal year. In addition the Congressional Budget Office estimates that the proposed FDA regulations could slash states tobacco excise revenues by an additional $20 million in 2010 and up to $300 million by 2014.
Those projected losses spell trouble for state budget writers who witnessed diminishing returns from tobacco taxes even before the federal governments latest actions. Between 2003 and 2007 39 of 57 tobacco tax increases at the state level fell short of lawmakers revenue expectations according to the Altria Group parent company of tobacco giant Philip Morris.
New Jerseys experience epitomizes this growing problem. After state lawmakers increased their cigarette excise by 17.5 cents in 2006 the states tobacco tax revenue actually dropped $22 million according to the c. Despite those numbers New Jersey Gov. Jon Corzine (D) in May proposed an additional 12.5-cent hike in smokers taxes to help plug his states expected $1.2 billion deficit a proposal he hopes state lawmakers will include in their forthcoming budget.
Recent research in other states further draws the connection between higher tobacco taxes and shrinking cigarette sales. In Louisiana previous tobacco tax hikes the highest and most recent of which was 12 cents in 2002 sent smokers to neighboring states encouraged cigarette stockpiling diminished tobacco sales and returned less revenue than lawmakers anticipated according to the states Legislative Fiscal Office. The Louisiana House this month introduced but narrowly defeated a 50-cent increase in taxes on cigarettes.
In Illinois analysts at Illinois State University calculate that a proposed $1 cigarette tax hike could produce a 32 percent to 35 percent drop in sales and thus tax revenues because disgruntled smokers would travel to neighboring states to purchase cheaper tobacco goods. The proposed tax increase aimed at generating new revenue for health care for low-income Illinoisans is currently stalled in the state House.
It is shown that tobacco taxes are almost revenue neutral; its not going to generate as many dollars as projected" admitted Illinois state Sen. Terry Link (D) one of the bills sponsors. I look at it in a different way. … If we decrease the amount of smoking by raising taxes we may also be saving on the health-care front which saves the state money."
Read more HERE
*This story is from www.Stateline.com
Tony Romm
Clipping away at a $590 million deficit Rhode Island this April raised its taxes on cigarettes by $1 to $3.46 a pack the highest rate in the country. With the backing of its governor a former tobacco lobbyist Mississippi in May imposed its first tax hike on smokers in more than two decades up 50 cents to 68 cents a pack and is already considering another increase.
According to the Tax Foundation a nonpartisan research group the federal hike in cigarette prices could hold down sales and dent states tobacco tax receipts by $1.6 billion next fiscal year. In addition the Congressional Budget Office estimates that the proposed FDA regulations could slash states tobacco excise revenues by an additional $20 million in 2010 and up to $300 million by 2014.
Those projected losses spell trouble for state budget writers who witnessed diminishing returns from tobacco taxes even before the federal governments latest actions. Between 2003 and 2007 39 of 57 tobacco tax increases at the state level fell short of lawmakers revenue expectations according to the Altria Group parent company of tobacco giant Philip Morris.
New Jerseys experience epitomizes this growing problem. After state lawmakers increased their cigarette excise by 17.5 cents in 2006 the states tobacco tax revenue actually dropped $22 million according to the c. Despite those numbers New Jersey Gov. Jon Corzine (D) in May proposed an additional 12.5-cent hike in smokers taxes to help plug his states expected $1.2 billion deficit a proposal he hopes state lawmakers will include in their forthcoming budget.
Recent research in other states further draws the connection between higher tobacco taxes and shrinking cigarette sales. In Louisiana previous tobacco tax hikes the highest and most recent of which was 12 cents in 2002 sent smokers to neighboring states encouraged cigarette stockpiling diminished tobacco sales and returned less revenue than lawmakers anticipated according to the states Legislative Fiscal Office. The Louisiana House this month introduced but narrowly defeated a 50-cent increase in taxes on cigarettes.
In Illinois analysts at Illinois State University calculate that a proposed $1 cigarette tax hike could produce a 32 percent to 35 percent drop in sales and thus tax revenues because disgruntled smokers would travel to neighboring states to purchase cheaper tobacco goods. The proposed tax increase aimed at generating new revenue for health care for low-income Illinoisans is currently stalled in the state House.
It is shown that tobacco taxes are almost revenue neutral; its not going to generate as many dollars as projected" admitted Illinois state Sen. Terry Link (D) one of the bills sponsors. I look at it in a different way. … If we decrease the amount of smoking by raising taxes we may also be saving on the health-care front which saves the state money."
Read more HERE
*This story is from www.Stateline.com
