New Data Suggests Cigarette Taxes a Risky Revenue Source

Data released this week by the Centers for Disease Control (CDC) reveal that the number of Americans who smoke fell between 2005 and 2010. Moreover, the CDC report containing the numbers indicates that the number of Americans who smoke 30 or more cigarettes per day has also declined.

3 million fewer people, or 1.5 percent, smoked in 2010 as compared against 2005 numbers. Meanwhile, in 2005, 13 percent of smokers smoked 30 cigarettes a day or more, whereas just 8 percent did in 2010.

The news will be greeted by health advocates. But the numbers should also grab the attention of legislators at both the state and federal level, who can be prone to treating cigarette tax increases as good policy capable of closing budget and funding gaps.

Back in 2009, the Reason Foundation identified that since 2003, cigarette taxes had been increased 57 times around the U.S., but that 68 percent of those hikes failed to result in projected revenue increases.

With more people giving up, however, experts say enhancing revenues via raising cigarette taxes could get tougher.

In addition, states that do hike taxes could see an increase in cigarette smuggling, which deprives the state in question of revenue it had anticipated. This is a problem experienced by New Jersey, which a 2009 report obtained this week by Newark’s Star-Ledger shows is experiencing significant challenges in collecting in the revenue it needs to bank in order to get the full benefit of its $2.70 per pack cigarette tax.

According to that report, about 40 percent of cigarettes smoked in the Garden State are illegally brought into the state by smugglers. That translates to a loss of more than $500 million in revenue the state was counting on when it last raised its cigarette tax.

With many states (and federal officials) still concerned about budget shortfalls, smokers can expect to see more pushes made to increase cigarette taxes moving forward. However, the CDC and New Jersey Treasury Department report data raise further questions about the merits of hiking cigarette taxes to enhance revenue.