Hike in Cigarette Tax: Is it Good or Bad?

Last updated on August 7, 2013

To understand if the increases in cigarette taxes are good you need to review its impact. A cigarette tax hike is expected to bring decrease smoking, but the increase in cigarette prices can also result in an increase in cigarette smuggling. Reports have shown that a hike in cigarette taxes leads to an increase of smugglers buying cigarettes from low-tax states for the purpose of selling them either to retailers or customers in high-tax states for large profits.

It has been seen that the cigarette taxes are a good source to generate additional revenue. The state of Illinois increased the taxes on cigarettes $1 per pack in 2012 and its cigarette tax revenue reached $30 million for 2013, which is more than double from the previous year.

In Minnesota, lawmakers increase cigarette taxes $1.60 per pack on July 1, 2014. The aim of increasing taxes was to discourage smoking and to raise revenue. Although it hasn’t been predicted how much impact the raise would have on decreasing smoking, analysts predict that the state is expected to have an increase of $200 million a year due to the rise in cigarette tax.

It is only after reviewing how the raised cigarette taxes have impacted revenue and smoking, and equally importantly, on the black market, can it be determined whether a tax increase on cigarettes is beneficial or not.