UPDATE – Effective July 1, 2010 the Utah tax rate became $1.70/pack. There is an inventory tax equal to the difference between the old tax rates and the new. The owner of Lotty’s in Evanston said, “They’ll get in their car and come up for the weekend and stock up on porn and beer and cigarettes.” A spokesman for the Tobacco Prevention and Control Program said, “They don’t understand the psychology of a smoker. Smokers don’t travel to buy their cigarettes. They go to the corner market. It’s probably habit more than anything.”

A Utah legislative house committee has proposed H.B. 196 to raise the Utah cigarette tax from 69.5 cents to $1.70 a pack. This will raise $22,500,000 in fiscal year 2011 and by $23,000,000 in 2012. The fiscal year begins July 1st.

Reasons Against Raising The Cigarette Tax

1. Smokers are not likely to quit because of a tax increase.

This argument misses the point. Whether or not it is stated, the primary objective of the cigarette tax is to raise revenue, which it will.

2. Smokers will purchase tobacco products in neighboring states or online.

This is worth considering. A round trip from Salt Lake City to Evanston is 167 miles. The cost of driving is an average of 54 cents a mile. Hence the transportation cost of a bootlegging expedition would look something like this:

167 miles X .54 dollars = $90.18

The proposed $1.10 tax difference ($1.70 Utah tax – $0.60 Wyoming tax) is not looking so bad after all.

So what about buying over the Internet, the great equalizer? I might ask why haven’t Utah smokers embraced Internet buying to avoid the current 69.5 cents tax? Could it be because of:

State age verification laws

The federal Jenkins Act, which requires that such sales be reported to state authorities

State laws prohibiting or regulating the direct shipment of cigarettes to consumers

State and federal tax laws

Federal mail and wire fraud statutes

The federal RICO law. Many of the sales made by foreign websites also violate federal smuggling, cigarette labeling, money laundering and contraband product laws.

3. Smoking is legal so should not be targeted.

Cars are legal too yet they are taxed heavily. Yet non-car owners reap a subsidy every time they ride public transportation. Why is this so? Because it is perceived that less cars on the road = good. Similarly less smokers = good. Get it? Good.

Reasons For Raising The Cigarette Tax

1. It will help offset the cost of illnesses and diseases related to smoking.

Indeed it will. Costs paid by government to treat lung cancer, emphysema, bronchitis, and heart disease are borne by all. Hence taxes collected from smokers will offset these expenses either directly or indirectly. The adverse health effects from cigarette smoking account for an estimated 443,000 deaths, or nearly 1 of every 5 deaths, each year in the United States.

2. The tax is higher in many other states.

It is. As mentioned, the Utah cigarette tax rate is 69.5 cents a pack, ranked at 36th in the U.S. If the tax is raised to $1.70, Utah will tie with Montana for 17th place.

Around the country we find that first place goes to Rhode Island at $3.46 followed by Connecticut at $3.00 and New York at $2.75.

49th place goes to Virginia at 30 cents followed by Missouri at 17 cents and South Carolina at 7 cents.

The average is $1.34 a pack. These rates do not include local cigarette taxes, sales taxes, or the federal $1.01 tax. For example, New York City has a $1.50 per pack tax in addition to the New York State tax of $2.75. The 8.875% New York City sales tax is also applied to the state cigarette tax.

The six states bordering Utah have these rates per pack:

Arizona — $2.00

Colorado — 84 cents

Idaho — 57 cents

Neveda — 80 cents

New Mexico — 91 cents

Wyoming — 60 cents

As you can see, only Idaho and Wyoming have lower rates — and not by much.

3. Increasing the cost helps deter youth smoking.

Tax policy is used in multiple areas to encourage and discourage “good” and “bad” behavior. Consider the mortgage interest deduction, child tax credit, and the alternative fuels credit. Smoking is considered “bad” hence it is taxed heavily. Even some things that are “good”, like my income, are taxed heavily. However I do not believe that the cost of cigarettes is a deterrent to youth smoking but increased taxes could be used in anti-smoking campaigns.

You can probably come up with more reasons for or against a cigarette tax increase.

Summary

This appears to me to be a good bill. If it were me I would raise the tax by 50.5 cents the first year and 50 cents the second year. I wouldn’t pretend the tax was anything other than a revenue raising device. If smokers quit it will save the state from expensive health costs. If not, then additional monies are contributed to said health expenses.

I do not believe many smokers will go elsewhere to feed their habit. However, time will tell on this.

As a non-smoker I have published here what I have casually researched. If any readers have additionally information or experiences, please share.

Tobacco Tax Source: Campaign for Tobacco Free-Kids. Also there may be a benefit to a tax increase for your state.