August 25, 2005

Revenue Goes Up In Smoke

And the news about cigarette taxes keeps on rolling. This is from a news article in the Denver Post:
Since Colorado's 64-cent cigarette-tax increase took effect in January, sales have declined so much that many cities and counties are experiencing double-digit drops in cigarette-tax revenue.
As I pointed out in my last post, cigarette taxes are a bad source of long-term revenue for programs with increasing costs (such as health care). There's an additional lesson to learn from this case in Colorado - declining revenue source.

One of the theories as to why cigarette sales and hence cigarette tax revenues are dropping is that people are now buying them online - which allows them to evade sales taxes. Another theory is that the tax increase simply pushed people into quitting or smoking less. Each theory would lead to a decline in cigarette tax revenue.

The overall lesson to be learned - cigarette taxes don't make for good, long-term revenue policy. It's a slow growth tax, and as with the case in Colorado, it could also be a declining revenue source.


At 4:00 PM, Blogger Themis said...

There's more to cigarette taxes than revenue. There's public health, and a better quality of life. Revenue going down due to smokers quitting, or even cutting back, is a sign of a positive influence on people's lives. Revenue going down due to internet purchases just highlights that this is a loophole that needs to be closed.


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