In Tax Foundation Fiscal Fact No. 166, "The Effect of the Federal Cigarette Tax Increase on State Revenue," Tax Foundation chief economist Patrick Fleenor explained that the hike in the federal tax will depress state and local government revenues because, as congressional authorities estimate, the sale of legally [image-nocss] stamped tax-paid cigarettes will drop by about 10% or 1.7 billion packsin the aftermath of the tax increase.
To varying degrees, state and local governments rely on the sale of cigarettes for three sources of revenue. The smallest is general sales tax revenue, where almost all states levy a general sales tax on cigarettes. The next largest is revenue from the Master Settlement Agreement (MSA) they signed with the four major tobacco companies in 1998. The largest is excise tax revenue, or product-specific taxes levied on cigarettes, which (under current law) range from seven cents per pack in South Carolina to $2.75 in New York.
"The bulk of state and local revenue losses will result from $1.6 billion in lost excise tax revenue," Fleenor said. "MSA payments are also expected to fall by $805.8 million."
Losses are expected to vary widely by state. California, Texas and New York are expected to each lose more than $150 million in revenue next fiscal year. Meanwhile, losses in Wyoming, North Dakota and the District of Columbia are expected to be less than $6.5 million.
Click hereto view Fiscal Fact No. 166.
Also,click here to view the chart "State Sales, Gasoline, Cigarette & Alcohol Tax Rates by State, 2009."
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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