Fiscal Fact No. 166
Today the federal cigarette tax will rise from 39 cents to $1.01 per pack. The proceeds will help fund expansion of the federal State Children's Health Insurance program. This program provides federal matching funds to states to assist them in providing health insurance to families and children. The SCHIP program is targeted at families with modest incomes above Medicaid eligibility limits.
Of course what the federal government gives with one hand it takes with the other. A $6.3 billion increase in the federal cigarette excise will reduce the disposable incomes of residents in the states. Table 1 shows that this reduction ranges from $581 million in California to $10.8 million in the District of Columbia.
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In addition to affecting residents' pocketbooks, a hike in the federal tax would also depress state and local government revenues. To varying degrees state and local governments rely on the sale of cigarettes for three sources of revenue.1 The first is excise tax revenue, or product-specific taxes levied on cigarettes. Under current law, cigarette excise taxes range from 7 cents per pack in South Carolina to $2.75 in New York. States also receive revenue from the Master Settlement Agreement (MSA) they signed with the four major tobacco companies in 1998. The amount of money each state receives varies and is a function of the number of packs sold in the state each year. In addition, almost all states levy a general sales tax on cigarettes.
Congressional authorities estimate that the sale of tax-paid cigarettes will drop by about 10 percent—or 1.7 billion packs—in the aftermath of the federal tax hike. Table 2 shows that Tax Foundation analysts estimates that this will reduce state and local revenues by $2.3 billion in fiscal 2010, the first year the tax is fully in effect. The bulk of these losses will result from $1.6 billion in lost excise tax revenue. MSA payments are also expected to fall by $805.8 million. On the positive side of the ledger, because the federal tax will drive up the cost of cigarettes, sales tax receipts are expected to rise by $105.8 million.
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Table 2 |
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State |
Taxed Sales (thousands of packs) |
Total Revenue |
Excise Revenue |
MSA* |
Sales Tax Revenue |
|
Total |
-1,655,638 |
-$ 2,296,311 |
-$ 1,596,304 |
-$ 805,789 |
$ 105,783 |
|
Alabama |
-39,680 |
-$ 30,678 |
-$ 19,461 |
-$ 13,669 |
$ 2,452 |
|
Alaska |
-2,250 |
-$ 7,638 |
-$ 6,034 |
-$ 1,605 |
$ 0 |
|
Arizona |
-17,266 |
-$ 41,710 |
-$ 34,531 |
-$ 8,530 |
$ 1,351 |
|
Arkansas |
-19,067 |
-$ 26,293 |
-$ 21,927 |
-$ 5,754 |
$ 1,387 |
|
California |
-110,474 |
-$ 183,570 |
-$ 96,112 |
-$ 96,810 |
$ 9,353 |
|
Colorado |
-23,309 |
-$ 28,664 |
-$ 19,580 |
-$ 9,879 |
$ 794 |
|
Connecticut |
-13,400 |
-$ 36,808 |
-$ 26,799 |
-$ 11,186 |
$ 1,177 |
|
Delaware |
-11,362 |
-$ 15,531 |
-$ 13,066 |
-$ 2,465 |
$ 0 |
|
Florida |
-136,680 |
-$ 92,651 |
-$ 46,334 |
-$ 54,787 |
$ 8,470 |
|
Georgia |
-66,117 |
-$ 42,400 |
-$ 24,463 |
-$ 21,634 |
$ 3,698 |
|
Hawaii |
-3,654 |
-$ 10,592 |
-$ 7,856 |
-$ 2,986 |
$ 250 |
|
Idaho |
-9,027 |
-$ 7,795 |
-$ 5,146 |
-$ 3,229 |
$ 580 |
|
Illinois |
-50,890 |
-$ 90,731 |
-$ 66,547 |
-$ 28,636 |
$ 4,452 |
|
Indiana |
-53,342 |
-$ 63,425 |
-$ 53,075 |
-$ 14,611 |
$ 4,260 |
|
Iowa |
-16,366 |
-$ 25,700 |
-$ 22,258 |
-$ 4,661 |
$ 1,219 |
|
Kansas |
-14,538 |
-$ 17,102 |
-$ 11,485 |
-$ 6,501 |
$ 884 |
|
Kentucky |
-61,742 |
-$ 45,951 |
-$ 37,045 |
-$ 12,834 |
$ 3,928 |
|
Louisiana |
-42,665 |
-$ 34,184 |
-$ 15,360 |
-$ 20,564 |
$ 1,739 |
|
Maine |
-5,657 |
-$ 14,765 |
-$ 11,314 |
-$ 3,879 |
$ 428 |
|
Maryland |
-20,713 |
-$ 53,885 |
-$ 41,427 |
-$ 14,058 |
$ 1,599 |
|
Massachusetts |
-17,243 |
-$ 62,200 |
-$ 43,281 |
-$ 20,358 |
$ 1,439 |
|
Michigan |
-43,066 |
-$ 107,270 |
-$ 86,132 |
-$ 24,897 |
$ 3,759 |
|
Minnesota |
-23,072 |
-$ 48,813 |
-$ 34,447 |
-$ 16,336 |
$ 1,969 |
|
Mississippi |
-29,628 |
-$ 20,732 |
-$ 5,333 |
-$ 17,518 |
$ 2,118 |
|
Missouri |
-70,488 |
-$ 32,539 |
-$ 14,249 |
-$ 21,739 |
$ 3,449 |
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Montana |
-4,315 |
-$ 9,991 |
-$ 7,336 |
-$ 2,655 |
$ 0 |
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Nebraska |
-12,596 |
-$ 13,081 |
-$ 8,061 |
-$ 5,742 |
$ 722 |
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Nevada |
-16,912 |
-$ 17,526 |
-$ 13,529 |
-$ 5,212 |
$ 1,215 |
|
New Hampshire |
-13,772 |
-$ 22,403 |
-$ 18,317 |
-$ 4,086 |
$ 0 |
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New Jersey |
-21,428 |
-$ 72,492 |
-$ 55,177 |
-$ 19,790 |
$ 2,475 |
|
New Mexico |
-7,125 |
-$ 11,232 |
-$ 6,484 |
-$ 5,144 |
$ 395 |
|
New York |
-34,763 |
-$ 163,418 |
-$ 108,729 |
-$ 57,189 |
$ 2,500 |
|
North Carolina |
-80,618 |
-$ 43,998 |
-$ 28,216 |
-$ 19,274 |
$ 3,493 |
|
North Dakota |
-5,490 |
-$ 5,922 |
-$ 2,416 |
-$ 3,780 |
$ 273 |
|
Ohio |
-72,152 |
-$ 119,460 |
-$ 92,515 |
-$ 31,754 |
$ 4,808 |
|
Oklahoma |
-32,865 |
-$ 42,076 |
-$ 33,851 |
-$ 8,225 |
$ 0 |
|
Oregon |
-18,971 |
-$ 31,465 |
-$ 22,386 |
-$ 9,079 |
$ 0 |
|
Pennsylvania |
-75,206 |
-$ 140,031 |
-$ 101,528 |
-$ 43,921 |
$ 5,418 |
|
Rhode Island |
-3,495 |
-$ 11,851 |
-$ 8,597 |
-$ 3,638 |
$ 384 |
|
South Carolina |
-48,964 |
-$ 12,660 |
-$ 3,428 |
-$ 11,944 |
$ 2,712 |
|
South Dakota |
-3,969 |
-$ 8,005 |
-$ 6,073 |
-$ 2,120 |
$ 188 |
|
Tennessee |
-47,788 |
-$ 42,706 |
-$ 29,631 |
-$ 16,561 |
$ 3,486 |
|
Texas |
-97,905 |
-$ 182,283 |
-$ 138,046 |
-$ 51,856 |
$ 7,619 |
|
Utah |
-8,914 |
-$ 9,681 |
-$ 6,195 |
-$ 3,935 |
$ 449 |
|
Vermont |
-2,569 |
-$ 7,000 |
-$ 5,112 |
-$ 2,110 |
$ 221 |
|
Virginia |
-64,835 |
-$ 40,369 |
-$ 26,837 |
-$ 16,812 |
$ 3,280 |
|
Washington |
-16,340 |
-$ 43,643 |
-$ 33,088 |
-$ 12,148 |
$ 1,593 |
|
West Virginia |
-23,637 |
-$ 20,478 |
-$ 13,000 |
-$ 8,898 |
$ 1,420 |
|
Wisconsin |
-33,121 |
-$ 70,919 |
-$ 58,623 |
-$ 14,348 |
$ 2,052 |
|
Wyoming |
-4,654 |
-$ 5,541 |
-$ 2,792 |
-$ 2,942 |
$ 193 |
|
District of Columbia |
-1,539 |
-$ 6,450 |
-$ 3,077 |
-$ 3,503 |
$ 131 |
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*Master Settlement Agreement signed in 1998 between the governments of 46 states and the four largest tobacco firms. |
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Losses are expected to vary widely by state. California, Texas and New York are expected to each lose more than $150 million in revenue next fiscal year. Meanwhile, losses in Wyoming, North Dakota and the District of Columbia are expected to be less than $6.5 million.
Notes
1. This list is not exhaustive. A hike in the federal cigarette tax will also reduce state income, property and other tax receipts.
