As the infamous Willie Sutton said, he robbed banks because that’s where the money is, and that’s why Governor Tomblin and lawmakers will likely raise tobacco taxes. It’s the easiest place to find at least part of the money necessary to balance the budget.
But how much money? The answer is, it depends.
First, know that West Virginia has the highest per capita rate of cigarette smoking in the country; 97 packs a year per person compared with 47 nationally. Twenty-seven percent of West Virginians smoke, while the national average is 18 percent.
In 2015, West Virginia retailers sold 173 million packs of cigarettes, generating $95 million in revenue.
WVU’s Bureau of Business and Economic Research has run the numbers and come up with best estimates of how much additional revenue a higher cigarette tax would generate and how behavior would be impacted. And behavior is a key component because typically if you want to get less of something, you tax it more.
New York imposes a stunning $4.35 per pack tax. Certainly some smokers have been priced out of the market, but the WVU report says New York is now flooded with cheaper cigarettes from other states. An estimated 58 percent of all cigarettes smoked in The Empire State come from out of state.
Additionally, New York has lost $400 million in revenue because the prohibitive tax has forced smokers to turn elsewhere for their habit.
The WVU report says our state already has price-driven behavior because of border communities proximity to neighboring states.
“West Virginia has benefitted from residents from Pennsylvania, Ohio, and Maryland coming into West Virginia to purchase cigarettes given the state’s lower cigarette excise tax rate,” the study says. “West Virginia has perhaps also lost some cigarette purchases to Virginia in a similar way, although the tax differential is relatively small.”*
The cigarette tax proposals being considered now by the West Virginia Legislature are far more modest than New York, but the WVU researchers say they will still impact behavior.
The study finds an increase of .45 cents to $1 a pack tax “will likely lead to over a six percent drop in cigarette purchases and yield approximately $67 million in additional excise collections,” while raising the tax by $1 to $1.55 per pack would cut into purchases by 14 percent and generate a net increase of $134 million annually.
The WVU report adds that increasing the tax over a two- to four-year period could slow some of the revenue losses. However, the reason a cigarette tax increase is inevitable is that the state needs the money now.
There is some fiscal irony to the entire debate. Smoking causes health problems that, in the case of poorer residents on Medicaid, taxpayers have to pay for. However, if everybody in West Virginia quit smoking tomorrow, the state would lose millions in tax revenue.
Ultimately, the cigarette tax issue is more about the revenue than the health of the smokers. The lingering question is if the Republicans and Democrats, the House and Senate, and the Governor can agree on just how much more smokers should pay.
*(Bordering state per pack cigarette tax rates: PA $1.60, MD $2.00, VA .30 cents, but slightly higher in some cities and counties, KY .60 cents, Ohio $1.60)