Providers issue brief: tobacco: excise taxes: year end report-2003

All 50 states, the District of Columbia, and the federal government impose excise taxes on cigarettes and have done so for many years. State tobacco taxes range from a high of $2.05 per pack of cigarettes in New Jersey to a low of $0.03 in Virginia per pack. The federal government levies an excise tax that increased by $0.05 on Jan. 1, 2002, to $0.39 per package. Cigarette taxes are directed at the consumer, while taxes on other tobacco products focus on the wholesaler. In the 2002 legislative sessions, 33 states proposed increases in cigarette excise taxes as a means of addressing budget shortfalls; 20 states enacted increases. Increasing tobacco excise taxes may decrease tobacco usage and increase state revenue. Increasing cigarette taxes is a means of generating revenue that generally is supported by public opinion. For instance, a 2003 poll in Ohio found that 63 percent of the public favored increasing cigarette excise taxes as long as the revenue is used for health care purposes. Cigarette excise taxes was again an area of substantial legislative interest and activity due to continued state budget deficits. A February 2003 NCSL study of state budget shortfalls indicated that the current cumulative budget gap is approximately $25.7 billion for fiscal year (FY) 2003. State revenues were sluggish and generally most failed to meet budgeted levels. At least 30 states noted that general fund collections were below budgeted estimates, and 12 states reported that collections failed to meet revised levels. Although the additional tax revenue generated by raising excise taxes may not eliminate state budget shortfalls, the revenue may provide funds for specific state programs.This issue brief provides an overview of the policy issue, a brief history of tobacco taxation in the 50 states and the District of Columbia, an overview of legislative activity in 2003, and a state-by-state map of state tobacco taxes.