The Effect of the Federal Cigarette Tax Increase on State Revenue

 
 
April 01, 2009

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.

Table 1
Increased Federal Tobacco Excise Payments by State, Resulting from the 62-cent Federal Cigarette Tax Hike

Calendar Year 2010

   

Total

$ 6,340,750,000

Alabama

$ 109,978,857

Alaska

$ 15,600,214

Arizona

$ 134,852,031

Arkansas

$ 67,864,689

California

$ 581,127,778

Colorado

$ 104,058,146

Connecticut

$ 58,536,581

Delaware

$ 17,692,891

Florida

$ 379,981,723

Georgia

$ 201,691,767

Hawaii

$ 21,828,374

Idaho

$ 30,543,511

Illinois

$ 279,479,473

Indiana

$ 163,995,056

Iowa

$ 62,604,547

Kansas

$ 53,229,601

Kentucky

$ 128,026,882

Louisiana

$ 107,844,936

Maine

$ 28,467,786

Maryland

$ 104,345,971

Massachusetts

$ 116,613,891

Michigan

$ 231,677,653

Minnesota

$ 94,399,505

Mississippi

$ 76,066,634

Missouri

$ 154,309,350

Montana

$ 19,280,691

Nebraska

$ 37,285,410

Nevada

$ 63,143,599

New Hampshire

$ 28,470,956

New Jersey

$ 163,676,384

New Mexico

$ 42,409,119

New York

$ 395,510,605

North Carolina

$ 224,489,092

North Dakota

$ 13,404,840

Ohio

$ 281,256,032

Oklahoma

$ 98,940,497

Oregon

$ 67,665,226

Pennsylvania

$ 271,838,059

Rhode Island

$ 20,142,604

South Carolina

$ 103,204,568

South Dakota

$ 16,431,769

Tennessee

$ 160,546,327

Texas

$ 501,970,744

Utah

$ 32,463,700

Vermont

$ 11,923,948

Virginia

$ 155,510,031

Washington

$ 116,875,664

West Virginia

$ 49,692,858

Wisconsin

$ 117,357,576

Wyoming

$ 11,645,403

District of Columbia

$ 10,796,448

 

 

 

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.

Table 2
Revenue Lost by State and Local Governments, Resulting from 62-cent Federal Cigarette Tax Hike
State Fiscal Year 2010 (July 1, 2009 - June 30, 2010)
Dollar Amounts in Thousands

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

Montana

-4,315

-$ 9,991

-$ 7,336

-$ 2,655

$ 0

Nebraska

-12,596

-$ 13,081

-$ 8,061

-$ 5,742

$ 722

Nevada

-16,912

-$ 17,526

-$ 13,529

-$ 5,212

$ 1,215

New Hampshire

-13,772

-$ 22,403

-$ 18,317

-$ 4,086

$ 0

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

*Master Settlement Agreement signed in 1998 between the governments of 46 states and the four largest tobacco firms.

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.

 

 

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