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from NewsLink, Vol. 5, No. 4, Summer 2001
At $.76 per pack, the Massachusetts sales tax on cigarettes is already one of the highest in the nation. Nonetheless, a new coalition of legislators would like to put Massachusetts at the top of the list. Under a proposal that is making its way through the Legislature, the state would raise the tax by $.50 cents per pack – bringing to the total state tax take to $1.26.
While cigarette taxes comprise only a small portion of the state's annual revenues (1.6% of FY 2001 revenues), they are increasingly popular. A recent poll found that 69% of the state's voters favor raising the tax to fund programs that prevent teen smoking and expand access to health care.
However, support for a tax increase rubs up against economic reality. Over the long term the state realizes a spike in tobacco tax revenues after the enactment of a tax hike (See chart.) But those revenues level off. Are cigarette tax revenues sufficiently reliable to fund expanded access to health care?
Not if the chart shown here is to be believed. In each of the four instances in which cigarette taxes were increased over the last 22 years, revenues have initially risen but then quickly tapered off. In the second instance, in which the tax was increased to $.26, revenues eventually fell below the level attained before the tax was increased. From 1979 to 2000, the tax increased by 262% while revenues rose by only about 100%.
Perhaps it's time that policy makers recognize the contradiction between a policy aimed at discouraging smoking and a policy aimed at funding health care through cigarette taxes.
NewsLink is the quarterly newsletter of the Beacon Hill Institute for Public Policy Research at Suffolk University. © 1996-2002. All rights reserved.
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