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An Open Letter to the Illinois General Assembly: Oppose Cigarette Tax Hikes!
April 26, 2012
By Brent Mead
On behalf of the National Taxpayers Union’s 14,000 members in Illinois, I urge you to reject Governor Quinn’s proposal to raise the cigarette tax rate by $1.00 per pack. Simply put, more and higher taxes are not the solution to the Land of Lincoln’s perpetual overspending problem. Years of crippling tax hikes have not addressed the state’s structural issues and a tobacco tax hike is unlikely to prove any different. Raising the cigarette tax by $1 per pack – a 102 percent increase – will give Illinois the dubious honor of having one of the highest state-level taxes in the nation.
Cigarette tax increases are not good public policy because such taxes disproportionately burden the poor and are unreliable sources of revenue. Since lower-income Illinoisans are more likely to smoke, they bear more of the burden imposed by cigarette taxes. Moreover, projected collections from such tax hikes are notoriously optimistic. New Jersey reported a $52 million shortfall in revenues after it raised its cigarette tax by 17.5 cents. The District of Columbia boosted its cigarette tax by 50 cents in 2009, and subsequently reported that it collected $15 million less than expected, and $7.6 million less than it collected prior to the tax hike.
These numbers merely affirm the reality that consumers will seek the lowest possible price for a good. This is particularly pronounced in the Chicago-area, home to the nation’s highest cigarette taxes. A study published soon after Cook County’s dramatic doubling of tax rates in 2006 found that as many as 75 percent of cigarettes consumed in the city were untaxed as smokers sought lower-cost products from outside the county. This kind of tax avoidance also imposes a crushing burden on convenience stores and gas stations, many of whom depend on tobacco sales to help sustain their businesses. A station in Riverside saw cigarette sales plummet from 110,000 packs per month to just 17,000 after the Cook County tax increase. Further tax hikes will only exacerbate this problem.
Governor Quinn cites the very real challenge of exploding Medicaid costs as the reason for this job-killing tax policy. Next year alone, the state has a $2.9 billion unfunded liability in the program, costs that will no doubt be piled on top of onerous “maintenance of effort” provisions and higher enrollment due to the 2010 Patient Protection and Affordable Care Act. However, tying a dwindling revenue source to an exploding spending program is a recipe for another fiscal disaster in the state. The solution to higher Medicaid spending is to restructure and improve the efficiency of the program, not to impose highly regressive tobacco taxes on Illinoisans who are still struggling in this difficult economy.
Last year, Illinois passed a multi-billion-dollar tax increase that had devastating effects on the state economy but did little to dent the budget deficit, which now totals over $8 billion. A swift rejection of Governor Quinn’s proposed cigarette tax increase would send a small signal that the state is ready to tackle its problems with hard work, not higher taxes and budget gimmicks.
Sincerely,Brent MeadState Government Affairs Manager