Since various cigarette tax proposals have been floated around during the school finance reform debate, I thought this story on Michigan’s experience with a tax hike on tobacco would make for some useful reading.
Cigarette sales in Michigan are on track for the largest decline in more than 30 years, following a $2-a-pack state tobacco tax that went into effect a year ago this week.
Sales plunged about 19 percent between August and January, according to Orzechowski &Walker, a Virginia research firm backed by the tobacco industry.
If the numbers hold, the drop will exceed the state’s previous largest decline since the 1970s: 11 percent in 2003. That followed a tax hike that went from 75 cents per pack to $1.25.
The latest increase has been a boost to the state budget, averaging an extra $24 million a month, according to treasury figures. But it has been a financial strain for smokers and cigarette sellers.
[…]
Treasury records show overall tobacco tax revenue was up nearly 30 percent between July of 2004 and April of this year compared to the same period in 2003-2004.
Before the tax was passed, state officials estimated the tax would generate $313 million in additional revenue for fiscal 2005.
In the first 10 months of collecting the tax, the state has taken in an additional $239.6 million — on track to meet or exceed estimates.
[…]
For Lenora Gilbert, the higher tax has proven a mixed blessing.
At 17, she smokes about a pack of $4.75- $5 Marlboro Menthol 100s every two days. She smoked a pack and a half every day before the state raised its tobacco tax from $1.25 a pack.
The bad habit she enjoys has become too expensive.
“I’m quitting,” she said, shortly after snuffing out a butt.
Like Gilbert, some have cut back or quit smoking since the tax went up. But some have simply have moved to cheaper, roll-your-own brands. Sales of the lower-taxed, loose cigarette tobacco have skyrocketed, according to retailers.
Many others, however, are breaking the law, buying cigarettes online or bringing them back from neighboring states with lower taxes — Ohio, Indiana, Illinois and Wisconsin, according to state and tobacco industry officials.
Just some food for thought. I first wrote about a possible dollar-a-pack boost to the cigarette tax here.
As a former smoker, I can tell you that most people who still want to smoke will be able to justify any tax increase imaginable. The last time I bought cigarettes before quitting, the cheapest price I could find for Marlboro’s was $5.38 for two packs. That’s cheap compared to some places in the country, for sure. Even if the tax is raised $1/pack in TX, ciggies here would still be on the cheap side, comparatively speaking.