Declining smoking rates mean less tax money for states
February 16, 2007
Those who believe that smoking is just a health problem are probably not politicians who have to worry about things like budgets.
More and more US states are putting restrictions on where and when people can smoke. Beginning with banning smoking in the workplace, some states have followed up with the elimination of smoking in bars and restaurants. Many of these states have also raised taxes on cigarettes and other tobacco products as a way of encouraging people to stop smoking. In a few states the tax has approached or exceeded $2 per pack.
But in states where people are actually smoking less, tax revenues on tobacco products have dropped. While the effect on state budgets might not be immediate or severe, officials of those states are thinking about the decline in tax dollars coming into state coffers. With tobacco taxes being one of the few kinds of taxes that many people feel that it is acceptable to raise, that money has often been seen as a way to quickly solve budget problems that crop up.
In 2005, the latest year for which data is available, about one-fifth of adults in the US were smokers. That is down 25 percent from ten years ago. As a consequence, states were able to tax 2.8 billion fewer packs of cigarettes in 2005 than they had in 2000. While the states took in $13 billion in tobacco taxes in 2005, 15 states collected less taxes on cigarettes than they had in 2004. Federal taxes collected on cigarettes was also down, from $8.1 million in 2002 to $7.7 percent in 2005.
While the states could realize some savings in reduced costs for treating medical conditions related to smoking, it isn’t clear whether these savings will offset the losses from lower cigarette tax revenues. And so the politicians, who don’t want to encourage smoking, still worry about how their legislation limiting smoking will affect their states’ bottom line.