Taxes: Taxing smokes wont pay off
July 3, 2008 · Updated 10:27 PM
A trend has become apparent over the past several years. As state governments impose higher tobacco taxes on cigarettes, the resulting revenue streams have grossly underperformed expectations. Such is the case for Washington, and raising tobacco taxes even higher could exacerbate the situation.
There comes a point when taxes on a product will eventually stunt the overall volume of sales therefore negating a once promised high source of revenue. The evidence suggests this has been happening with cigarettes for quite some time.
Washingtons $1.815 of taxes per pack includes the federal excise tax but not the state and local sales taxes and ranks as one of the higher tobacco taxes in the nation and means the average cost of a pack of cigarettes is now just over $5.
Consumers who want to skirt around these high tobacco taxes usually do one of four things to procure cheaper goods: Cross state lines, purchase cigarettes on Indian reservations, purchase cigarettes over the Internet or purchase cigarettes through the black market or smuggling.
These are just a few reasons why, though cigarette excise taxes have increased greatly over the past decade, revenue projections from these taxes very rarely meet or exceed expectations.
The declining volume sales of cigarettes stunt the ability for tax revenue to grow. Unfortunately, the cost for the programs the tax revenue funds, such as Medicaid and public health care, expand exponentially each year.
Each time another cigarette excise tax is levied we face the problem of a diminishing return.
Legislators should think twice before patching every budget hole by jumping onto the back of tobacco users. Its risky, unstable and sure to disappoint.
Washington Policy Center