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Cigarette tax hikes slowing

By Kay Bell · Bankrate.com
Tuesday, June 5, 2012
Posted: 4 pm ET

All public health and tax eyes are on Tuesday's big anti-smoking election battle in California.

Golden State voters will decide whether to add another $1 to the state's excise tax on cigarettes. That would increase the cost of a pack by $1.87.

California is not alone in looking for more money from smokers, though most of the money raised by the cigarette tax increase would go to cancer research programs. Illinois lawmakers just bumped up that state's tobacco tax. Rhode Island wants to do the same.

But, says the Washington, D.C.-based policy research group the Tax Foundation, the enthusiasm nationwide for cigarette tax increases appears to have cooled.

When 2012 began, the average state cigarette tax was $1.46 per pack. That amount, says the Tax Foundation, was a hefty increase from the average of $1.18 just three years earlier; the 2012 tax also was nearly 10 times higher than it was a quarter century earlier.

And during the last decade, Tax Foundation data shows that 47 states and the District of Columbia raised cigarette taxes a total of 105 times.

That tax trend, however, despite the closely watched California vote, seems to be stalling.

One possible explanation as to why more tobacco tax hikes are being snuffed out is disagreement on how the new tax money should be spent.

Cigarette tax increases typically are justified as a way to pay for the societal costs of smokers, such as health care and insurance premiums.

But now, many are questioning how governments actually spend the tobacco tax dollars.

In fact, prospects for passage of the higher cigarette tax in California has diminished somewhat. Early polls found almost two-thirds of voters approved of raising the tax. More recent ones find that the electorate is more  closely divided, with just 50 percent saying they'll vote for the tax.

Sure, the billions that the tobacco industry has poured into efforts to defeat the tax probably has contributed to the narrowing of opinions on the tax. But there's also been some concern that so much of the money will go to medical research instead of programs to stop smoking, especially among the young.

And a lot of folks worry that the tax increase is too regressive, that lower-income cigarette buyers will be hurt more by the levy.

Joseph Henchman, the Tax Foundation's vice president for Legal & State Projects, says that overall, high cigarette taxes are poor tax policy: "They allow the majority to shift the costs of government programs onto the minority."

Such tax policies, writes Henchman in the report, are problematic because they distort economic decision-making, invite retaliation from other states, and ultimately harm economic activity and commerce. Plus, revenue that relies on consumer trends such as smoking is volatile. Increased state reliance on such taxes, says Henchman, can cause budget problems down the line.

I am a former smoker and I can tell you that while I grumbled even back then about the cost of my vice, that wasn't the prime motivation for me to give up cigarettes. My husband's dislike of the habit was. When I smoked, I just paid what was required to make sure I had a smoke when I wanted.

What about you? Do you think higher cigarette taxes are a good idea? Do you think they money should go only to health-related programs, or are states justified in using the money to pay for general program costs?

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