Illinois Cigarette Tax Increase Becomes a Fiscal Flop
Cigarette tax revenue in Illinois is falling far short of the amount projected last year, state officials say.
In May of 2012, state legislators approved a $1-per-pack increase on the price of cigarettes, nearly doubling the state’s tax rate to $1.98 per pack, the 17th-highest state tax rate in the nation. However, the tax delivered only $212 million of the expected $350 million for the fiscal year ended June 30.
Governor Pat Quinn (D) said the cigarette tax increase would help sustain the state’s Medicaid program, as well as the School Infrastructure Fund, while also discouraging smoking. But The Heartland Institute, Illinois Policy Institute and other public policy groups predicted the state would fail to receive the projected increase in tax revenue. They noted the likelihood that consumers would try to avoid the tax by buying cigarettes out of state, where taxes are lower.
Border State Advantages
For instance, neighboring Missouri has the lowest tax rate of all states, at 17 cents per pack. In neighboring Kentucky, the per-pack tax is only 60 cents.
University of Illinois at Chicago professors Frank J. Chaloupka and Jidoug Huang published an article in early 2011 titled, “A Significant Cigarette Tax Increase in Illinois Would Produce a Large, Sustained Increase in State Tobacco Tax Revenues.” Yet a more recent study, incredibly from the same university, has since found that 75 percent of cigarettes consumed in Chicago are purchased from across state lines (usually Indiana), where the state tax is 99 cents a pack.
Illinois state government has long been taking steps to reduce smoking, which would reduce cigarette tax revenue. The state banned smoking in or near public places in 2008 with the Smoke Free Illinois Act, and the General Assembly later struck down a bill that would allow many private establishments to purchase smoking licenses.
Dane Skorup (firstname.lastname@example.org) is interning at The Heartland Institute.