New Study: Tobacco Tax Hikes Associated with Subsequent General Tax Increases, Revenue Shortfalls

August 2, 2013

The National Taxpayers Union Foundation just released an excellent study detailing the recent history of tobacco taxes in the states. Their main findings:

  • States with low cigarette taxes have lower overall tax burdens
  • Tobacco tax hikes are rarely used to cut other taxes
  • Tobacco taxes don’t forestall other tax increases
  • Tobacco tax hikes may encourage other tax hikes down the road
  • Cigarette taxes don’t spur economic growth

Some of these findings are not surprising; for example, when you lay our tax burden numbers next to tax cigarette tax rates, you find that states with high tax burdens generally tend to have high tobacco taxes as well. This lends credence to the argument that cigarette taxes are often passed under the guise of helping smokers quit, but are really desirable to politicians because they want additional revenue.

Other findings are new though; the report shows that states that hike tobacco taxes often end up hiking other taxes soon after. This finding for the most part holds regardless of economic cycles. Here’s a chart I hadn’t seen before:

Finally, they found state data that confirms a claim we made in a blog post last week on federal cigarette taxes: tobacco taxes don’t often met revenue expectations because tobacco consumption has been declining since the 1960s.

Read the report in its entirety here.

More on tobacco taxes.

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