PHILADELPHIA and ALBANY, N.Y. -- For years, lawmakers have leaned on so-called sin taxes—excise taxes on products such as tobacco and alcohol that generally have some negative attribute to consumption—to help balance budgets. The practice continues today, but a recently released study suggests the financial windfalls are often only temporary.
Since 2000, all but nine states in the United States have significantly raised tax rates on cigarettes and other tobacco products, said the report from The Pew Charitable Trusts, Philadelphia, and the Nelson A. Rockefeller Institute of Government, Albany, N.Y. The median state tax on cigarettes has increased more than fourfold—from 34 cents in 2000 to $1.57 in 2017. The circumstances behind the increases vary, but they point to two primary motivations: advancing public health by making tobacco use cost prohibitive and increasing revenue from those who continue to use tobacco.
The research found that with tobacco, the funds levied for state budgets ultimately diminishes as people buy or use less of the targeted products. Similarly, state revenue growth from taxes on alcohol and gambling is unlikely to be sustained due to how the products are taxed, changes in demand and casino competition.
The report examined state-tax trends from 2008-2016, using federal and state revenue data, academic and other relevant literature, and interviews with state officials.
Here are some significant conclusions of the research ...