Tobacco Taxes Won't Fix State Budgets

From Stateline.org:

While cash-strapped state legislatures tout tobacco taxes as politically safe moneymakers, new data and old lessons suggest that more tax hikes could mean even more budget troubles.

Despite states’ best efforts to use tobacco excises to reduce their staggering deficits, a host of conflicting fiscal forces -- including a recent increase in the federal cigarette tax and a dampening in overall tobacco sales – could produce far less tobacco revenue than lawmakers first anticipated.

...In the opinion of Grover Norquist, the director of Americans for Tax Reform, tobacco excises are false promises. States that apply the taxes to fund a program and fail to meet their own targets inevitably must raise taxes again, he said. This is especially true in a recession, as lawmakers lack the support to raise income taxes, which are better suited for solving fiscal crises, he added.

“Any problem of overspending that could be passed on to cigarettes could be fixed by just spending more wisely,” he said. “The problem with the tax increase isn’t just that it’s a tax increase… it is that the tax is what you did instead of reforming state government.”

That’s why some are willing to overlook tobacco taxes’ fiscal imperfections: In a recession, anything more is politically untenable.

“You have to go back decades to see states with such budget shortfalls,” said Sujit CanagaRetna, a state budget and tax expert at the Council of State Governments. “A ‘sin tax’ is a low hanging fruit. Politicians are more prone to go down that path because doing so is just not as onerous.”