Cigarette tax hike comes at right time during recession


POSTED: Tuesday, March 31, 2009

Cigarette prices rose significantly today, and state legislation should add to the taxes in three months. The steep prices are sure to persuade many smokers to end their addiction. Even though the tax increases might not produce the amount of revenue projected, the health factor is overwhelming.

The federal tax on cigarettes went from 39 cents to $1.01 a pack today. Tobacco companies already had acted in anticipation with price increases, which ranged from 71 cents to 81 cents a pack at Philip Morris. A Hawaii House-passed bill would increase state taxes on July 1 by 40 cents — to $2.40 a pack — combining and accelerating four dime increases scheduled every September through 2012.

Altogether, the price of cigarettes in Hawaii could balloon by more than $2 in the next three months. A 10 percent increase in cigarette prices reduces consumption by 3 percent to 5 percent and discourages young people from beginning the habit, according to the Centers for Disease Control and Prevention, so the price hikes could cause one of every 10 smokers to quit, perhaps more in the middle of a recession.

The state Department of Taxation projects that the proposed Hawaii cigarette tax revenue would grow by $32.3 million in the coming fiscal year and “;supports the intent”; of the legislation. Georgina K. Kawamura, the state budget and finance director, supports “;moving this bill forward ... to address our budget shortfall and ensure the fiscal health of our state.”;

Lowell Kalapa's Tax Foundation of Hawaii warns that “;a decline in consumption”; is more likely to deprive Hawaii of “;a quick fix to the state's financial woes.”; Kalapa asserts that New Jersey and Maryland experienced such declines in revenues following tobacco tax hikes.

However, Frank J. Chaloupka of the Health Policy Center at the University of Illinois at Chicago says no state has experienced a revenue decline as a result of tobacco price increases. In New Jersey, he says, other factors, including a new comprehensive smoke-free-air law, came into play.

Still, 41 of the 57 state tax increases that went into effect from 2003 to 2007 fell short of revenue projections, according to Bill Phelps, a spokesman for the Altria Group, Philip Morris' parent company. He says cigarette sales have dropped by an average of 3 percent a year in the last decade.

The recession is prompting state tax increases on cigarettes throughout the nation, even in the South, where they remain relatively small; Kentucky's tax doubled today to 60 cents a pack. New Jersey Gov. Jon Corzine is asking his Legislature for a 12.5-cent increase over the current $2.58 a pack, and Oregon Gov. Theodore R. Kulongoski is proposing that his state's $1.18-a-pack tax be raised by 60 cents.