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Press Release


New Study: Tobacco Taxes Cause, Don’t Solve, Budget Dilemmas

For Immediate Release August 1, 2013
Douglas Kellogg, (703) 683-5700
Pete Sepp, (703) 683-5700

(Alexandria, VA) – Today, National Taxpayers Union Foundation (NTUF) released a new study on the fiscal impacts of tobacco taxes, revealing that these measures overwhelmingly fail to meet revenue projections, lead to more taxes in other areas, and do not correlate with strong economic growth.

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“The evidence starkly shows taxes on tobacco products resemble a weak budgetary crutch whose frequent collapse leaves this fiscal burden to fall on all taxpayers and consumers,” said study author Diana Oprinescu. “These levies are continually associated with high tax states that are struggling economically.”

The major highlights include:

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!
  • 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 conducted by National Taxpayers Union, 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.

  • 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 the 2008 study by the National Taxpayers Union 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.

  • 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, in 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 years when compared to the national average: 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).

Oprinescu concluded, “Ultimately our research shows that the downsides of punitive fiscal policy and reactive budget management are present no matter the political convenience of a particular tax.”

NTUF is the research affiliate of the 362,000-member National Taxpayers Union, a non-profit taxpayer advocacy group founded in 1969. More information is available at ntu.org/ntuf.