Yesterday, the Senate approved a three month extension of the Highway Trust Fund. The bill, called the Surface Transportation and Veterans Health Care Choice Improvement Act, would fund the Highway Trust Fund until...
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- Wyoming Considers 167 Percent Cigarette Tax Hike
Wyoming Considers 167 Percent Cigarette Tax Hike
Legislation was introduced recently in the Wyoming legislature that would raise taxes on cigarettes by $1 per pack. The tax is estimated to raise $35 million annually and would be used to finance Medicaid within the state. Currently, Wyoming falls on the lower end of the spectrum of state cigarette taxes (ranking 39 at $0.60 per pack), but if passed, the legislation would skyrocket Wyoming into 19th highest in the country—a tie with Delaware and Pennsylvania at $1.60 per pack. The measure would be a tax increase of nearly 167 percent.
Supporters hope to achieve two goals: decrease tobacco consumption and fix a “shortfall on health care funding.” Proponents of cigarette taxes argue that they are a successful means to lower smoking rates—the law of demand dictates that a higher price will cause users to substitute away from cigarettes. While there is good evidence that higher cigarette taxes reduce consumption, this is not the whole story.
Public policies can often lead to unintended negative consequences. In the case of cigarettes, tax differentials across state lines lead smugglers to transport tobacco illegally from low tax states to high tax states. This is no small problem. According to a recent report released by the Mackinac Center, 60 percent of all cigarettes consumed in New York State in 2011 were procured from the black market. As tax rates start to look more and more like de facto prohibition, the black market (characterized by violence and lack of concern for age controls) represents a larger share of cigarette consumption.
Wyoming’s current cigarette tax is lower than nearly all of its neighbors (except Idaho, where cigarette taxes per pack are $0.57). The Wyoming Survey & Analysis Center argues that because of this, it is “likely a net exporter of cigarettes to consumers in bordering states” and that “cigarette exports increase Wyoming cigarette tax revenue.” This tax increase, however, will make Wyoming cigarette taxes higher than nearly all of its neighbors (except Montana and Utah, where taxes per pack are $1.70). A tax hike will likely cause Wyoming to become a net importer of cigarettes as consumers smuggle cheaper cigarettes from neighboring states.
Finally, cigarette taxes tend to be some of the most regressive taxes around. According to a 2009 Gallup study, 34 percent of the lowest-income individuals (individuals with annual incomes of $12,000 or less) in the U.S. use cigarettes, as opposed to 13 percent of high-income Americans (those with yearly earnings of $90,000 or more). In other words, “more than half of today’s smokers (53%) earn less than $36,000 per year—making cigarette taxes highly regressive.” In Wyoming, 35 percent of those earning less than $15,000 annually were smokers in 2010 (an increase from 32 percent in 2009). Conversely, only 15 percent of Wyomingites earning over $50,000 annually were smokers in 2010.
Cigarette taxes might be an attractive source of revenue to politicians because they raise money from an unpopular group of the population, but they aren’t good tax policy. They are unfair, non-neutral, and they have substantial unintended consequences. If a program is worth funding, it’s worth funding with real, broad based taxes, not politically expedient ones.
More on Wyoming here.
More on cigarette taxes here.
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