States expand cigarette taxes
SAN FRANCISCO (CBS.MW) -- The cost of lighting up is going up as more states raise cigarette taxes to offset budget shortfalls and rising health-care costs.
Four states -- New York, New Jersey, Illinois and Vermont -- already have boosted their per-pack levy this year, and Pennsylvania will begin taking 69 cents more starting July 15th, triple the tax it had been collecting.
Led by Alaska and Hawaii several years ago, nine states now tax at least $1 per pack, with Maryland, Vermont and New Jersey joining the club this spring, according to the Campaign for Tobacco-Free Kids.
But it's a municipality that's setting the highest bar. New York City smokers now have to shell out more than $7 a pack - twice the national average -- after the city raised its tax to $1.50 from 8 cents and New York state increased its tax to $1.50 in May. That means Big Apple, pack-a-day smokers will have to cover about $2,500 in out-of-pocket costs per year.
"There's been a lot of evidence over the last few years that taxes are really effective in getting people to quit," Campaign spokesman Pete Fisher said. "They're especially effective in get low income people to quit."
Antismoking advocates say cigarette taxes are necessary to pay the rising cost of tobacco-related illnesses born by all taxpayers. But smokers' rights groups maintain the taxes are an unfair burden placed on an easily targeted group, and that many of the funds don't go toward health care anyway.
States that have raised their cigarette taxes this year include:
New Jersey -- by 70 cents per pack
Vermont -- 49 cents
Illinois -- 40 cents
Engineering a deterrent
The crippling effects of smoking have been well documented, but a recent study from the World Health Organization estimated the damage is far more pervasive than originally thought.
The report found that smoking causes cancer in more organs than those confined to the respiratory tract. Even non-smokers are at a higher risk. Second-hand smoke increases the threat of lung cancer by as much as 20 percent, the study said.
With that in mind, states are more focused on realizing health-care savings. Government data finds a 10 percent tax hike yields a 4 percent cut in overall consumption and a 7 percent reduction in youth smoking, Fisher said.
"By raising the cigarette tax, you can and you will always raise revenue, you will reduce tobacco consumption and it's a tax that's approved of by voters around the country," he said.
Overall, states collect about $8 billion in cigarette taxes a year, and receive an equal amount in settlement money from tobacco companies, Fisher said.
Tobacco causes about $75 billion in health-care costs and $79 billion in productivity losses from early mortality to smoking, he said.
Cigarette taxes are lowest in the South where the industry is most prevalent. Virginia is at the bottom of the list with 2.5 cents, while North Carolina charges 5 cents a pack. Kentucky, which has the highest percentage of smokers at 30 percent, has a 3-cent tax on cigarettes.
Flight to cheaper cigarettes?
But states' cigarette taxes often don't go specifically toward health-care programs and instead get rolled into a general fund, said Pete Sepp, spokesman for the National Taxpayers Union.
"These are far more attractive to lawmakers for fundraising than any supposed benefits to their constituents' health," he said.
However, that's not the case in California, where Gov. Gray Davis has proposed jacking up the 87 cent-tax by another 50 cents.
The first 50 cents goes toward the California Children and Families First trust fund, an antismoking educational group, Board of Equalization business tax representative Gordon Lowton said.
Another 10 cents is allocated to the general fund; 2 cents goes to breast cancer research; 5 cents to health and education; 8.75 cents goes to hospital services; 2.5 cents to physician services; 1.25 cents for public resources; 1.25 cents for research; and 6.25 cents is unallocated, he said.
Still, smokers faced with higher taxes are likely to look for lower prices across state borders, on the Internet, or American Indian Reservations. Some may resort to criminal activity to beat the price hikes, Sepp said.
"A $7 pack of cigarettes is a huge inducement to either buy them elsewhere or buy them on the sly from someone who smuggles them into the city without any tax," he said, noting that the 2.5-cent tax in Virginia will be particularly appealing to committed New York smokers who are only a four-hour drive away.
But the tobacco industry is exaggerating the migration, Fisher said, using New York, which raised its tax 55 cents in 2000 and another 50 cents a year later, as an example.
"If in the intervening time there were massive outpourings of people trying to get cigarettes elsewhere, I don't think they would've done it again," he said. "It's all just scare tactics refuted by what happens in the real world."