Cigarette Tax Increases Take Effect in Six States on July 1

Cigarette Taxes Continue to Help States Reduce Smoking and Raise Revenue

Jun. 26 2003

Washington, D.C. — On July 1, cigarette tax increases will take effect in six more states – Georgia, Hawaii, New Mexico, Rhode Island, Vermont and Wyoming. This will bring to 29, along with the District of Columbia and Puerto Rico, the number of states that have increased cigarette taxes since January 1, 2002 (several of these states have increased their cigarette taxes more than once). On July 31, Delaware will become the 30th state to increase its cigarette tax.

Once all are in effect, these cigarette tax increases will have raised the average state cigarette tax from 43.4 cents on December 31, 2001, to 70.5 cents. With the 39-cent federal cigarette tax added, the average combined state-federal cigarette tax will be $1.10. The U.S. Centers for Disease Control and Prevention estimates that smoking-caused health costs and lost productivity in the United States total $7.18 per pack. Of the 30 states that have increased cigarette taxes, 20 have done so under the leadership of Republican governors.

According to an analysis by the Campaign for Tobacco-Free Kids, the combined effect of these cigarette tax increases will be to:

  • Prevent more than 850,000 kids from starting to smoke
  • Spur more than 520,000 adult smokers to quit
  • Prevent more than 380,000 smoking-caused deaths
  • Produce more than $14.6 billion in long-term health care savings
  • Raise more than $4.1 billion in annual revenue for states struggling with budget shortfalls.

These estimates are based on research showing that every 10 percent increase in the price of cigarettes reduces youth smoking by approximately seven percent and overall cigarette consumption by three to five percent.

Despite these clear benefits of cigarette taxes, and polls showing broad, bipartisan public support for cigarette tax increases across the country, 10 states continue to have cigarette tax rates less than 25 cents per pack. Public health advocates urge the 20 states that have not yet increased cigarette taxes to do so quickly so they can realize the many benefits. (To see a chart showing the benefits of a 50-cent cigarette tax increase in each of the states that has yet to increase its tax, please go to http://www.tobaccofreekids.org/research/factsheets/pdf/0238.pdf.)

"The latest evidence shows that cigarette tax increases continue to be a win-win-win solution for states. They're a health win that reduces smoking and saves lives, a fiscal win that raises much-needed revenue, and a political win that is popular with the voters," said William V. Corr, Executive Director of the Campaign for Tobacco-Free Kids. "State elected officials across the country should ignore the increasingly desperate arguments of the tobacco companies and protect our kids and health by increasing cigarette taxes."

Preliminary evidence confirms every state that has significantly increased its cigarette tax in recent years has enjoyed substantial increases in revenue, even while reducing cigarette sales. Michigan, for example, collected $104 million more in cigarette tax revenue in the last five months of 2002 compared to the year before despite a 15.5 percent reduction in cigarette pack sales. Nebraska's 2002 tax increase has produced $10 million more in additional revenues between October 2002 and April 2003 than in the same period the year before. Even in New York City, where the combined state and local cigarette tax rate has increased to $3.00 per pack, the city's tax increase from 8 cents to $1.50 per pack is on track to bring in a quarter of a billion dollars in new revenue over the first year despite sharp declines in cigarette sales.

Polls show overwhelming public support across the country for tobacco tax increases. This support comes from Democrats, Republicans and Independents alike, from every region and even in states that have recently increased their cigarette taxes. A recent poll of Oregon voters, for example, found 64 percent support raising the cigarette tax by 75 cents, even though the state recently enacted a 60-cent increase to $1.28 per pack. Even in southern states, where legislatures have resisted increasing tobacco taxes, strong majorities favor boosting the tax.

Because cigarette tax increases are reducing cigarette sales, they are taking a toll on tobacco industry profits. R.J. Reynolds' CEO stated in April 2003, "RJR's profitability continues to be adversely affected by… state cigarette excise tax increases." To fight cigarette tax increases, the tobacco companies have resorted to increasingly desperate tactics, even running ads claiming that cigarette taxes benefit organized crime by increasing cigarette smuggling. (See the Campaign's Responses to Misleading and Inaccurate Cigarette Company Arguments Against State Tobacco Tax Increases at http://tobaccofreekids.org/research/factsheets/pdf/0227.pdf.)

The answer to the problem of cigarette smuggling and other forms of tax avoidance, such as Internet cigarette sales, is not to reduce cigarette taxes, but to strengthen and better enforce laws against smuggling and Internet tax avoidance, and for the few states that still have incredibly low cigarette tax rates of only a few pennies per pack to increase them.

The CDC estimates total annual public and private health care expenditures caused by smoking at more than $75 billion. This amount includes $23.5 billion under Medicaid, a program whose increasing costs have contributed significantly to state budget deficits. Smoking-caused government healthcare spending amounts to $550 per household per year.

Twelve states have also increased their taxes on tobacco products other than cigarettes, but most states are overlooking this important additional tool for obtaining substantial new revenues and public health benefits. (See http://tobaccofreekids.org/research/factsheets/pdf/0169.pdf.)

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Comprehensive information on state tobacco taxes (and the benefits from increasing them) is available at http://tobaccofreekids.org/reports/prices. If you have any questions or would like additional information, please call Joel Spivak or Tony Iallonardo at 202-296-5469.

 

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