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ROMM: States raise tobacco tax, not necessarily revenue 

For lawmakers scrounging to balance state budgets in a recession, tobacco taxes were one of the most popular options on the table this year. Seven states -- Arkansas, Florida, Hawaii, Kentucky, Mississippi, Rhode Island and Vermont -- tapped smokers' wallets to help plug their budget gaps, up from two states in 2008. More than 20 additional states debated whether to follow suit, according to the National Conference of State Legislatures.

But there are growing signs that tobacco, which generated about $19 billion for states in revenue from sales and excise taxes last fiscal year, might not deliver the new money state lawmakers are hoping for.

In a double-whammy for smokers, the federal government on April 1 also imposed a 62-cent increase in its cigarette tax, raising it to $1.01 a pack, and the Food and Drug Administration is assuming sweeping authority over the tobacco industry. Together, the two federal moves are likely to depress cigarette sales -- already in decline -- that every state counts on for extra cash. According to the Tax Foundation, a nonpartisan research group, the federal increase in cigarette prices could hold down sales and dent states' tobacco tax receipts by $1.6 billion next fiscal year. In addition, the Congressional Budget Office estimates that the proposed FDA regulations could slash states' tobacco excise revenue by an additional $20 million in 2010 -- and up to $300 million by 2014. . . .

That's why state health departments tend to celebrate tobacco taxes as hard-fought victories. In New York, where the state cigarette tax is $2.75 a pack, health officials say a combination of higher taxes and smoking bans have lowered health-care costs statewide. . . .

. But while states have long-term financial and health reasons to discourage smoking, they remain hooked in the short term on these "sin taxes" -- excises on vices such as smoking, drinking and gambling that are politically easier to increase than sales or income taxes. . . .

Others regard these short-term budget patches as part of a larger problem. One leading critic of higher taxes, Grover Norquist of Americans for Tax Reform, said a better solution to burgeoning budget gaps is to cut state spending.

"Any problem of overspending that could be passed on to cigarettes could be fixed by just spending more wisely," Norquist said. "The problem with the tax increase isn't just that it's a tax increase. . . . It is that the tax is what you did instead of reforming state government."

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