Tobacco Taxes Fastest Growing Tax from 2000 to 2005

May 16, 2007

The growing trend in recent years has been to raise revenue in ways that are politically feasible, which is why new Census data shows that the fastest growing tax at the state and local level has been tobacco taxes, despite rapidly growing property taxes. Raising taxes on tobacco products is an easy political sell because tobacco tax revenue benefits all taxpayers but only a minority of people must pay any significant amount of the tax.

The following table shows the percent change in tax revenue combined at the state/local level by type of tax from fiscal year 2000 through fiscal year 2005. The figures are not adjusted for inflation, and are therefore nominal. Of the big tax sources (property, income and sales), property taxes have risen the most, followed by general sales.

Knowing what we know generally about the incidence of these taxes, it appears as if those tax sources that are growing more rapidly are the more regressive taxes like general sales, public utilities, and tobacco (and property somewhat, depending on the incidence assumption one makes). Individual income taxes, on the other hand, are the slowest growing source of tax revenue for state and local governments in percent terms.

Type of Tax
(Census defined)
State & Local Tax Revenue
Increase from 2000 – 2005
Total Tax Collections 25.7%
Property Taxes 34.7%
General Sales 22.2%
Motor Fuel 15.6%
Alcoholic Beverages 17.1%
Tobacco Products 55.4%
Public Utilities 26.5%

Other Selective
Sales Taxes

Individual Income 13.8%
Corporate Income 19.6%
Motor Vehicle Licenses 19.8%
Other Taxes 48.1%

Note: This table does not look at the growth in what Census defines as “non-tax revenue sources” such as tolls, lotteries, etc.

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