 Health Policy Tracking Service - Issue Brief Summary
Date: 10/01/2003
State Tobacco Excise Taxes
All 50 states, the District of Columbia and the federal government have continued to impose excise taxes on cigarettes. State tobacco taxes currently range from $2.05 per pack of cigarettes in New Jersey to a low of $0.03 in Virginia. The federal government levies an excise tax that increased by $0.05 on January 1, 2002 to $0.39 per package. In addition, 46 states tax smokeless tobacco products, including chewing tobacco and snuff. Cigarette taxes are directed at the consumer, while taxes on other tobacco products focus on the wholesaler.
Proponents of increasing excise taxes contend that states may direct additional tax revenue to programs favored by voters in economically strapped times. These programs include Medicaid, economic development, health research and various education programs. Moreover, advocates assert that increasing taxes have substantial economic and health benefits. Raising excise taxes increases rates of tobacco cessation and provides long-term health care savings to the states.
Opponents of increased excise taxes argue that smokers-23 percent of the population-carry a disproportionate tax burden. Tax revenue is often used to fund expansive government programs unrelated to tobacco cessation, tobacco prevention and the treatment of tobacco-related illnesses. Further, opponents assert that increasing excise taxes is not a panacea for state budget crises. Excise tax revenue is sensitive to consumer demand, which they contend has fallen since the 1960's. Therefore, the amount of excise tax revenue collected by the states may vary annually. State governments would better address budget shortfalls by identifying sustainable sources of new revenue.
Despite the fiscal condition of the states and the general public support for increasing tobacco excise taxes, the passage of tobacco excise tax legislation was not as automatic in 2003, as it was in 2002. Of the 36 state legislatures and governors that proposed excise tax increases, only 14 state legislatures have enacted increases: Alabama, Arkansas, Connecticut, Delaware, Georgia, Idaho, Montana, Nevada, New Jersey, New Mexico, Rhode Island, South Dakota, West Virginia, and Wyoming. The Alabama Legislature is unique in that lawmakers left the final decision on increasing the excise tax to the electorate. Sixty-eight percent of the electorate rejected Alabama's Governor proposed excise tax increase in a referendum held on September 9, 2003.
The difficulty may be attributed partly to a general sensitivity to raising taxes. This is the case in Florida. The state House and Senate currently are considering a $0.53 per package increase that would generate $97 million for Medicaid programs. A number of legislators assert that decreases in other taxes and reforms in state agencies that handle Medicaid funds must accompany an increase in the state excise tax.
The proposed distribution of increased tax revenue varies substantially. For instance, the Kentucky General Assembly proposed using the revenue for the Police Program and Infrastructure Enhancement Fund to improve the criminal justice system. Of the 36 states that proposed increasing tobacco excise taxes, 20 states proposed distributing at least a portion of the revenue to state general funds.
The legislatures in 23 states-Arkansas, California, Hawaii, Idaho, Iowa, Kentucky, Maine, Minnesota, Mississippi, Missouri, Montana, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Oklahoma, South Carolina, Texas, Virginia, West Virginia, Wisconsin and Wyoming-proposed using the revenue for health care programs, with 10 state legislatures proposing to distribute revenue to Medicaid programs. The political rhetoric, particularly in the Wisconsin Legislature, asserted that the additional tax revenue may eliminate or minimize spending reductions in Medicaid programs. Only Missouri, New Hampshire, New Jersey and Oklahoma proposed using the tax revenue expressly for tobacco-related health care programs.
Please contact Andrew McKinley (andrew.mckinley@ncsl.org) for more information on this issue.
Additional information on this issue can be found in the biweekly Snapshots and quarterly Issue Briefs published by NCSL's Health Policy Tracking Service (HPTS). HPTS services and publications are available to state legislators and their staff at www.hpts.org. Please contact Laura.Miller@ncsl.org if you have forgotten your state legislature's username and password.
The Health Policy Tracking Service, a program of the National Conference of State Legislatures, systematically collects, tracks, analyzes and publishes information on the actions of state legislatures affecting health policy, and provides value-added services including research support and e-mail alerts. HPTS maintains a password-protected web site with access to over 300 health policy topics-categorized under Behavioral Health, Health Insurance, Medicaid, Pharmaceuticals, Providers and Tobacco-available to legislators and their staff, or by subscription to others. HPTS also produces special reports and annual publications that are available as individual purchases. For more information contact us at info@hpts.org or 202.624.3567.
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