Question: When does not raising a tax increase state revenue?
Answer: When other states are increasing that tax.
The Wall Street Journal recently published a story about states raising their cigarette taxes. According to the article:
- The federal government currently collects $3.90 per carton;
- State tobacco taxes range from 7 cents per pack in South Carolina to $2.575 in New Jersey;
- However, the median state tax per pack is 84 cents.
So, depending on the state in which you live, you could be paying really high cigarette taxes or exorbitantly high cigarette taxes. And that spread appears to be getting wider.
The point of the article is that several states have recently increased their tobacco tax. “In the past six years, some 43 states, as well as dozens of cities and counties, have raised cigarette taxes, sometimes by a dollar a pack (or $10 for a carton of 10).”
Of course, the politicians claim to be doing it to encourage people to quit and live healthier lifestyles. Maybe, but it seems to us that they have grown addicted to that tobacco tax money and it would be awfully hard for them to quit.
Do they make a patch for legislators trying to break the tax-increase habit?
What that means is that smokers living in high-tax states with relatively easy access to a low-tax state will cross the state line to buy their smokes. That effort to arbitrage the lower price is creating a mini-boom for the low-tax states, as thousands of smokers seek out the lowest tax they can conveniently access.
So if you were an enterprising politician who wanted to increase state revenues but were fundamentally opposed to raising taxes on your own constituents, maybe you should work with neighboring states to encourage them to raise their taxes.
Then many of their smokers would cross the line into your state to buy cigarettes, and pump money into your coffers — new revenue without raising taxes.