Marathon Pundit: Hiking cigarette taxes means less revenue

Thursday, August 12, 2010

Hiking cigarette taxes means less revenue

Since Governor Pat Quinn has not ruled out a cigarette tax hike in Illinois, I am compelled to remind you that higher smoking taxes not only means less business for retailers on the wrong side of the tax line, it can even mean less tax collected.

Illinois has a scofflaw mentality--Have you heard of Governor Blago?--and while some smokers will quit--a good thing for society and for the ex-smokers--many Chicago area residents will make a "cigarette commute" to Indiana--not only depriving the state of cash, it will hurt Illinois small businesses--but of course benefit our neighbor to the east. If fact that is already occurring.

I have an update, courtesy of the New York Association of Convenience Stores, about the Empire State's plunge into tax oblivion:

The first six weeks of meteoric cigarette tax rates in New York showed a plunge in sales at convenience stores statewide, mainly because most smokers are finding ways to dodge the tax altogether, reports the New York Association of Convenience Stores

On July 1, Governor Paterson and the Legislature increased the cigarette excise tax from $2.75 a pack to $4.35, the highest state tax rate in the country. Just as NYACS predicted, the 58% jump unleashed a new wave of cigarette tax evasion, as tens of thousands of additional smokers – aghast at $9 to $12 pack prices – shifted their purchases to tax-free tribal smoke shops, the black market, and border states with lower tax rates.

Field reports indicate convenience stores have suffered an average drop of 25% to 35% in cigarette packs during July, but that those in closest proximity to tribal outlets and state borders experienced losses of up to 45%. Meanwhile, Indian reservation and border-state "tax havens" are flourishing, with sales up as much as 300% at some outlets.