Cigarette Excise Tax, Ohio Cigarette Tax Changes Bring Higher Prices

An Ohio coalition refutes the findings of a recent report claiming that increasing Ohio’s cigarette tax by $1 per pack would bring the state $299.7 million per year.

The report released yesterday, entitled, Tobacco Taxes: A Win-Win-Win for Cash-Strapped States is based on national and state surveys of registered voters.

“Any economist will tell you that it is impossible for a buck increase on a pack of cigarettes to generate $299 million in Ohio,” said Tom Jackson, president and CEO, Ohio Grocers Association and coalition member.

In late 2008, the Ohio coalition commissioned an extensive analysis of the impact of an increase in the state cigarette excise tax.  The study concluded that an increase in Ohio’s cigarette tax would result in minimal increases in total state tax revenues, and a higher cigarette tax could possibly reduce revenue to the state, according to Analysis of the Impact of an Increase in the Ohio Cigarette Excise Tax, December, 2008.

The Ohio study says that a cigarette tax increase does not result inevitably in a revenue gain and references New Jersey, the first state to see an actual reduction in cigarette revenues in the same year the tax rate increased.  In fiscal year 2007, the year the tax rate was increased in New Jersey, the cigarette tax generated $22 million less than the previous year.

“So although New Jersey revenues decreased when it raised its cigarette tax, this national report states New Jersey would actually make $80 million if it increased it again by a dollar,” Jackson said. “The numbers don’t add up for New Jersey and they sure don’t add up in Ohio. In this tough economic time when state officials are doing their best to balance budgets, they need reliable information.”

The findings also show that an increase would adversely affect the working poor. Cigarette excise taxes are regressive and target low-income consumers, which means any proposed tax hike will be paid by Ohioans who are least able to pay. In fact, half of any price increase will be paid by smokers with annual incomes under $30,000.  

The report also finds the cigarette taxes are an unreliable, declining and unstable funding source. Statewide smoking bans, a national trend to stop smoking, product substitution, higher fuel costs, smuggling and cross border sales are major factors in making it difficult to accurately project cigarette excise tax revenues.

Structural deficits, such as those facing Ohio, cannot be solved by relying on a declining tax source to fund services whose costs continue to increase, the coalition noted in a press release. “These are the honest, credible, scientifically-proven facts….raising cigarette taxes is a bad idea because it does not produce the desired results, it hurts our poorest population, and it puts Ohio at a disadvantage,” said Jackson.

The members of the coalition include: the Ohio Council of Retail Merchants; the Ohio Petroleum Marketers & Convenience Store Association; the Ohio Grocers Association; the Ohio Association of Convenience Stores; and the Ohio Petroleum Council.





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