Cigarette Tax Clouds Boosts Among States - WSJ.com
The hefty increase in the federal cigarette tax to help fund a children's health-insurance program has buoyed tobacco foes, who say it will breathe new life into efforts to curb smoking. But last week's move by Washington could also complicate efforts around the U.S. to boost state cigarette taxes.
Officials in at least 16 states -- including Mississippi, Georgia and Kentucky -- are weighing proposals for significant cigarette-tax increases to fill gaping budget holes or fund programs, calling in some cases for levies more than four times as high as current amounts. The sharply increased federal levy could alter their calculus, because the higher cigarette prices are likely to decrease sales, eroding projected tax revenue.
A 10% increase in the price of a pack reduces consumption by about 4%, said Frank J. Chaloupka, an economist and tobacco-tax expert at the University of Illinois at Chicago. Although higher prices reduce the number of cigarettes smoked, tobacco-tax revenue has still risen in nearly every state that imposed significant tax increases, he said. The new federal tax could motivate states to raise their own taxes to help offset the expected drop in cigarette sales, Mr. Chaloupka said.
But back-to-back federal and state tax increases could significantly drive down revenue from sales, as well as foster counterfeit trade, warns David Sutton, a spokesman for Altria Group Inc., the country's largest cigarette maker.How do you feel about funding SCHIP, since most likely the revenues from cigarette taxes will not cover the costs of the program?The National Association of Tobacco Outlets estimates that the federal tax increase, which applies to several forms of tobacco, will lead to the loss of 117,000 of the industry's 1.2 million jobs, a devastating blow especially in a bad economy, said Executive Director Tom Briant. "There are a lot of hardworking people who are going to lose their stores, and all their employees will lose their jobs," he said.