July 02, 2005
Taxing cigarettes

Since various cigarette tax proposals have been floated around during the school finance reform debate, I thought this story on Michigan's experience with a tax hike on tobacco would make for some useful reading.

Cigarette sales in Michigan are on track for the largest decline in more than 30 years, following a $2-a-pack state tobacco tax that went into effect a year ago this week.

Sales plunged about 19 percent between August and January, according to Orzechowski &Walker, a Virginia research firm backed by the tobacco industry.

If the numbers hold, the drop will exceed the state's previous largest decline since the 1970s: 11 percent in 2003. That followed a tax hike that went from 75 cents per pack to $1.25.

The latest increase has been a boost to the state budget, averaging an extra $24 million a month, according to treasury figures. But it has been a financial strain for smokers and cigarette sellers.


Treasury records show overall tobacco tax revenue was up nearly 30 percent between July of 2004 and April of this year compared to the same period in 2003-2004.

Before the tax was passed, state officials estimated the tax would generate $313 million in additional revenue for fiscal 2005.

In the first 10 months of collecting the tax, the state has taken in an additional $239.6 million -- on track to meet or exceed estimates.


For Lenora Gilbert, the higher tax has proven a mixed blessing.

At 17, she smokes about a pack of $4.75- $5 Marlboro Menthol 100s every two days. She smoked a pack and a half every day before the state raised its tobacco tax from $1.25 a pack.

The bad habit she enjoys has become too expensive.

"I'm quitting," she said, shortly after snuffing out a butt.

Like Gilbert, some have cut back or quit smoking since the tax went up. But some have simply have moved to cheaper, roll-your-own brands. Sales of the lower-taxed, loose cigarette tobacco have skyrocketed, according to retailers.

Many others, however, are breaking the law, buying cigarettes online or bringing them back from neighboring states with lower taxes -- Ohio, Indiana, Illinois and Wisconsin, according to state and tobacco industry officials.

Just some food for thought. I first wrote about a possible dollar-a-pack boost to the cigarette tax here.

Posted by Charles Kuffner on July 02, 2005 to Budget ballyhoo | TrackBack

As a former smoker, I can tell you that most people who still want to smoke will be able to justify any tax increase imaginable. The last time I bought cigarettes before quitting, the cheapest price I could find for Marlboro's was $5.38 for two packs. That's cheap compared to some places in the country, for sure. Even if the tax is raised $1/pack in TX, ciggies here would still be on the cheap side, comparatively speaking.

Posted by: Alan W on July 3, 2005 1:24 PM