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Federal and state governments look to smokers for more tax revenue

Though they hit poor Americans hardest, stiff taxes on tobacco can reduce healthcare costs by billions.

By Staff writer of The Christian Science Monitor / April 11, 2009



Atlanta

High cigarette taxes curtail smoking and reduce the habit's societal costs. But they also take a big bite out of the earnings of America's poor, who smoke cigarettes at nearly twice the rate of the average American.

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That's the paradox of the new 62-cent federal tax on tobacco, a historic hike that puts the average pack of smokes at $4.80 – $3.10 of which is taxes.

Ironically, wealthier smokers of high-end cigars aren't likely to see any increase during their next visit to their local Tabac, since cigar rollers and dealers have vowed to absorb a new "per stick" hike for cigars.

Indeed, balancing national health benefits with the potential fallout of higher taxes – including possible clashes between law enforcement and Americans who resort to the black market or use overseas websites for their tobacco needs – are only a few of the quandaries for state lawmakers, Congress, and President Obama, who reportedly has been trying to quit the habit himself.

What differentiates this tax hike from previous efforts is that it's the largest one yet that doesn't contribute at least some funds to helping people quit. And it comes at a time when many cash-strapped states are cutting such programs.

"It depends what side you're on: If you think [tobacco taxes] are a great way to raise revenue, it's good. But if you want to look at the impact on different segments of the population, you might want to consider who's going to be hit the most," says Jim Sherman, an Indiana University psychology professor who has studied the social impacts of smoking. "And it's true that [regressive taxes like those on tobacco] hit lower-income populations the most."

Proponents of the tax hike say that as many as 1 million Americans are likely to quit as a result, and up to 2 million teenagers may never start. This could reduce the burden on health and social costs by some $44 billion, according to the Campaign for Tobacco-Free Kids. Millions are likely to cut back on their smoking, which also lowers health risks, though not as much as quitting altogether.

About half of the states also are considering tobacco tax hikes, chiefly to shore up flagging state and income tax receipts. Rhode Island raised per-pack taxes by $1, bringing the total taxes for a pack in the Ocean State to $3.46. Even South Carolina, which has the country's lowest tax – just 7 cents – is drawing closer to a 50-cent hike, which passed the state House of Representatives recently.

The reaction to the federal tax hike has been dramatic in the past few weeks. Calls to some state "quit lines" have quadrupled since last month, to the point where Michigan had to close its line until October because it spent all its funding to handle the crush of calls.

Studies of past tax increases have shown that purchases dip dramatically shortly after implementation and then inch back up. Overall, however, the number of smokers is declining by about 3 percent a year. Price is the chief deterrent, according to the Centers for Disease Control and Prevention (CDC) in Atlanta.

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