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Higher state cigarette-excise taxes equal lower smoking rates and higher tax revenues. But in the wake of New York’s decision this week to raise the state cigarette tax by $1.25, to $2.75 a pack - the highest in the country - the strategy is coming under more scrutiny from analysts and economists. “On the surface, a tax increase may seem like a logical, straightforward way to bring more money into state coffers,” said Alicia Hansen, an analyst for the Tax Foundation of Washington. For example, the estimates of new revenue from the higher New York cigarette tax range from $265 million to $436 million a year. The primary use for the extra revenue is to pay for health-care investments, according to the budget agreement by the governor and legislature. For New York City residents, who must add in a $1.50 city cigarette tax and the federal excise tax of 39 cents, the typical pack will cost about $9. “However, taxpayers often change their behavior in response to tax increases, and legislators may not get the huge tax increase they hoped for,” Hansen said. “There may be other unintended consequences, such as lost business for retailers when consumers turn to the black market, or even increased crime,” she said. The Center for Policy Research of New Jersey found that the state collected $23 million less revenue from tobacco taxes in fiscal year 2007 than it did the year before, according to The Wall Street Journal. That’s despite the state having the previous highest cigarette tax at $2.575 a pack. Analysts said that there’s no doubt that Reynolds American Inc. and other major tobacco manufacturers will take a hit on sales from the sharp jump in the New York cigarette tax. Mark Greenberg, an analyst with Deutsche Bank, estimated that a proposed 61-cent increase in the federal excise tax - currently at 39 cents - and a 12 percent increase in state excise taxes would contribute to a double-digit drop in volume growth for Reynolds and Philip Morris USA in 2009. John Singleton, a spokesman for Reynolds, said yesterday that the company does not comment on how cigarette-tax increases could affect sales and earnings. “But you can’t keep going back to higher cigarette taxes and expect a steadily increasing revenue stream for various reasons,” Singleton said. Analysts said that those reasons include consumers going to other states with lower excise taxes, buying untaxed cigarettes online and making illegal purchases. Some analysts have said that the $2 cigarette-tax level represents the amount where tax revenues begin to fall rather than climb. There are 10 states with a cigarette tax of at least $2 a pack. Anti-smoking groups, however, called New York state’s action a goal for other states. “There are significant cigarette taxes pending in other states - Massachusetts, Maine, South Carolina, Florida and Mississippi,” said Peter Fisher, the vice president for state issues for the Campaign for Tobacco-Free Kids. “We are hopeful New York’s action will spur action in these states and others,” Fisher said. William Corr, the executive director of the advocacy group, said that “the evidence is clear that increasing the cigarette tax is one of the most effective ways to reduce smoking, especially among kids.” “Studies show that every 10 percent increase in the price of cigarettes reduces youth smoking by 7 percent and overall cigarette consumption by about 4 percent,’’ Corr said. “The tax increase is a win-win-win solution for New York - a health win that will reduce tobacco use and save lives, a financial win that will raise revenue to help alleviate budget shortfalls, and a political win that polls show is popular with the voters,” he said. Bill Godshall, the executive director of SmokeFree Pennsylvania, said that New York has been a leader in the three proven strategies for reducing smoking - a higher cigarette tax, smoke-free workplace laws and programs to prevent kids from smoking and to help smokers quit. But New York also has the highest rate of cigarette smuggling in the country as well, Godshall said. © Copyright 2006 by CigarettesOn.Com |
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