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Study Finds Tobacco Taxes Cause, Don’t Fix, Fiscal Problems

Douglas Kellogg
August 1, 2013

National Taxpayers Union Foundation (NTUF) just released a study that uncovers the grisly fiscal truth behind tobacco taxes - particularly, that all taxpayers and citizens are affected by the failure of these measures to live up to revenue projections, which leads to new taxes and budget crises.

Check out a rundown of the major findings below, and make sure to read the complete study HERE.

Cigarette tax hikes lead to different types of tax increases, fail to meet revenue projections. In nearly 70 percent of cases between 2001 and 2011, tobacco tax increases were followed by other tax hikes! Whether directly due to their failure to live up to revenue expectations, or simply because they signal a political apparatus desperate for more pet-program funding, there is no denying that every taxpayer has cause for concern when they hear a tobacco tax hike proposal.

  • Between fiscal years 2007 and 2011, 25 of 37 tobacco tax increases were followed by additional tax hikes.
  • When accounting for findings of a past study – which was conducted by the non-partisan National Taxpayers Union (NTU) – a total of 66 out of 96 tobacco tax increases between fiscal years 2001 and 2011 were followed by other tax hikes during the next two years.
  • Revenue projections were met in only 29 of 101 cases where cigarette/tobacco taxes were increased between 2001 and 2011. This means there is a 70 percent chance that a revenue estimate will be missed.

Tobacco tax revenues are rarely used to reduce other taxes. Considering how frequently such hikes are made in the name of education or healthcare programs, or pitched by revenue-hungry legislators, this may not be surprising. Nevertheless, this finding is key since it demonstrates these tax hikes do little to create flexibility in budget management.

  • Between 2008 and 2013, only two out of 40 revenue actions that raised the tobacco tax were followed by cuts in other taxes.
  • Furthermore, if the results presented in a 2008 National Taxpayers Union study are included, only four of 103 tobacco tax increases between 2001 and 2013 (less than 4 percent) were offset by other tax cuts.

States with high cigarette tax rates have tax burdens an average of $1,356 above the national average. NTUF’s study actually found that the correlation between a state’s overall tax burden and its cigarette tax rate went both ways;  states with lower cigarette taxes have lower overall tax burdens.

  • The tax pressure on residents of high-cigarette tax states was 39.4 percent heavier than the U.S. average in fiscal year 2010.
  • On the other hand, when analyzing the 15 states with the lowest per-pack cigarette tax in the nation, the total tax burden was $892 below the national average – or 21.6 percent less.

These types of tax increases are not associated with strong economic growth. States that hiked their tobacco taxes in some way in 2009 tended to have slower Gross State Product (GSP) growth over the following two : they grew at an average rate of 1.34 percent, compared to the U.S. average of 2.43 (a 1.09 percent lower growth rate).


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