Tobacco Taxes
To help fund health insurance for children in working-class families, Congress just raised the federal cigarette tax from $.39 a pack to slightly over $1/pack. Both the tax and spending sides of this measure will improve the health of Americans. Future tobacco taxes, however, should be designed to even out the variation that exists from state to state. Ten states impose less than 50 cents-a-pack taxes, while 10 other states tax cigarettes at $2/pack or more.
A good way for the federal government to reduce this difference is to follow the strategy used to fund unemployment insurance. Congress could enact a new $2/pack federal cigarette tax that would be waived to the extent a state’s tax were $2 or more. Surely low-taxing states like Kentucky, Virginia, South Carolina, Missouri, and Mississippi would prefer to increase sharply their own taxes than have their smokers taxed anyway and the money go to Washington.
Not only would the new revenue help those states pay for smoking cessation programs and health care for indigent adult smokers (which might be mandated by the federal government), but reducing the state-to-state tax differential would undermine the moderate but growing problem of interstate tobacco smuggling. Beyond that, an assured nationwide minimum tobacco tax of $3 a pack would bring the U.S. closer to compliance with the Framework Convention on Tobacco Control, the international tobacco treaty already adopted by most nations and which, it is hoped, the Obama Administration will soon convince the U.S. Senate to ratify.
Stephen Sugarman is Roger S. Traynor Professor of Law.
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