Packs Tax

Illinois Governor Rod Blagojevich wants to raise the cigarette tax by 75 cents a pack.. The idea is to raise more revenue and, as an afterthought, to discourage smoking. Is this a good idea?

First, let me say that I am not a smoker and never have been with the exception of the occasional status-enhancing (I thought) smoke in high school. I consider not having started smoking one of the greatest fortunes in my life so far. I am somewhat militant about restricting smoking in public places but I think that is an issue aside from raising taxes on smokes.

Generally, I favor so-called “sin taxes” as a way to both raise money and discourage over consumption of unhealthy products. And in case you are wondering (although you shouldn’t), yes I do drink and, no, I don’t mind the extra tax on alcohol as it stands now.

The question for me then becomes, how much is too much? There is concern the 75 cents a pack increase would be too much. Today’s Springfield Journal-Register tackles the issue on its front page:

Critics of a plan to hike the state's cigarette tax by 75 cents per pack say the
increase would hurt Illinois.

They charge that smokers will buy cheaper cigarettes via the Internet or, if they live along the borders, from neighboring states.

In addition, opponents believe a hike fuels the black market for tobacco.

"Bootlegging of cigarettes out of this state and into it would be unbelievable," said Harry "Bud" Kelley, executive director of the Illinois Association of Tobacco and Candy Distributors.

But Gov. Rod Blagojevich believes the increase, combined with an increase for other tobacco products as well, would raise $150 million needed for health care and roads in an otherwise cash-strapped year.

Now, by “too much” in the context of this article I think we are talking about it being counter productive. That is, the State not realizing the anticipated additional revenues while also doing economic harm to businesses in the state. Many smokers will be screaming “too much” simply because they will be paying a lot more for their habit. It’s a legitimate gripe, but let’s put that part of the discussion aside for moment and stick with the “will it generate more revenue for the state” issue.

The SJ-R article does a good job examining both sides and seems to conclude that more money likely will be generated for the state. For one thing, the article points out, neighboring states are considering upping the tax as well, reducing the price difference.

The best argument against it working well to raise money is that the new tax will simply encourage smokers to cross state lines, order cigarettes over the internet, and foster a black market. This is where the “what is too much” line has to be realized. If, for example, the plan was to increase the tax by $100 a pack, there is no question all of the above would happen and it would be nearly universal. I can’t imagine anyone paying that much to smoke on anything close to a regular basis. So, the line is somewhere between the current tax and $100, say. The line does exist.

Is the 75 cents increase over that line? No. There will be of the internet buying and crossing of state lines but the reality is most will simply pay the extra. And hopefully some will quit altogether. The last tax hike (40 cents in 2002) did result in a sales slump for a while but that has rebounded recently.

The biggest single reason the 75 cents won’t be “too much” is, well, laziness.

Yes, people seek out cheaper cigarettes from the Internet or other states, [Blagojevich spokesperson Rebecca] Rausch said.

But, she added, "People choose convenience over cost, and you're probably not going to drive 30 or 60 miles away to buy cigarettes when you can just go down the street."

That’s the thing, there will be some loud bellyaching but in the end smokers are going to pay and the State is going to make money. Will it be the $150 mil a year the governor hopes for, who knows? Hell, it could be more or maybe a lot less.

So, at least as a revenue enhancer, I say it’s a good idea. There is, however, more to the issue than just raising money nd I’ll look at that later.