SACRAMENTO, Calif. -- A larger-than-expected drop in cigarette-tax revenue appears to be the initial result of California’s $2-a-pack increase that took effect April 1, according to a nonpartisan study.
Instead of the expected 20% to 30% falloff in tax revenue, the Legislative Analyst’s Office, Sacramento, Calif., said the actual drop was 64% (see chart below) as researchers compared taxes assessed in May of 2016 to May 2017.
Pointing out another trend, the firm said revenues from cigarette taxes in March and April 2017 were 24% and 37% higher than revenues over the same time in 2016, respectively. It said one of the reasons for the revenue spike could be people stockpiling cigarettes in anticipation of the April 1 tax increase, although the study said direct evidence of consumer stockpiling is hard to find.
The sharp decline in May 2017 could reflect a range of responses, including temporary ones like stockpiling to more permanent responses like lower smoking rates.
In November 2016, California voters approved Proposition 56, which raised the state’s excise-tax rate on cigarettes from $0.87 per pack to $2.87 per pack starting April 1, 2017.
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