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US States Look to Tobacco Taxes for Revenue Boost - 2003-05-03

The governor of Missouri has ordered that every third light bulb in the state house be unscrewed. In Oklahoma, teachers are working as janitors, and in Kentucky, prison inmates are being released early. It's all because of severe budget crises in at least two-thirds of America's 50 states. Lawmakers have been reluctant to increase state income taxes to deal with the shortfalls. Instead, they've been cutting back on services and increasing fees for everything from a driver's license to a divorce. Many states and cities have also increased taxes on specific items sold within their borders and cigarettes have been the primary target.

The Delaware Tobacco Outlet is located about three kilometers south of a bridge that links the state of Delaware to its eastern neighbor, New Jersey. It's less than 200 kilometers from the heart of New York City, a short distance by American standards. On this particular morning, the store is full of customers - most of them not from Delaware.

Manager Shirley Legeza says the crowd of out-of-state customers isn't unusual. "Since July of last year, our clientele has increased immensely. People coming from New York, Pennsylvania, Maryland, Delaware, Connecticut. Why? Because every other state has been pelted with an extremely high cigarette tax," she says. "They're making it almost impossible to afford a carton of cigarettes."

Last July was when the city of New York slapped a tax of $1.50 onto every pack of cigarettes sold in the city. That was in addition to the $1.50 the state of New York had already placed on tobacco. Nowadays, a pack of cigarettes in New York City will cost you about $8. That compares to the $3.30 you'll pay in Delaware, where the cost of living is cheaper, there's no sales tax on anything, and the tax on cigarettes is just 24 cents a pack.

In New Jersey, the tax is a $1.50, and the governor there wants to raise it to $1.90. In nearby Pennsylvania and Maryland, cigarette taxes were recently increased to $1 a pack. In fact, according to the National Conference of State Legislatures, 20 states have raised their cigarette taxes in the last year, collecting more than $3 billion in revenue.

Jordan Barowitz is a spokesperson for New York City's mayor, Michael Bloomberg, who has enthusiastically embraced cigarette taxes as a way of closing the city's nearly $5 billion budget gap. "So far, the tax has been very successful on all fronts. We are collecting the revenue that we expected to, and that we need. As most people know, municipalities across the country are desperate for more tax revenue. And people are buying fewer packs of cigarettes," he says.

That second assertion about how people in New York City have decreased their cigarette consumption may or may not be true. It's possible they're just driving to Delaware and stocking up which is technically illegal, but according to Shirley Legeza at the Delaware Tobacco Outlet, it happens all the time. Still, the point is there's a reason lawmakers are targeting cigarettes, as they attempt to wrestle with budget deficits.

Danny McGoldrick is Director of Research at the National Center for Tobacco-Free Kids, a non-profit group that campaigns against smoking. "Anyone who's ever studied it has concluded that, in fact, when you increase the price, you reduce consumption among adults and children," he says. "People who have looked at it include the National Cancer Institute, the Centers for Disease Control, the Surgeon General, the World Bank. It's a basic law of economics. When price goes up, demand goes down. 400,000 Americans die every year from a tobacco-related disease. But if we can keep them from becoming regular addicted smokers, that's a huge step for public health."

Out in the parking lot at the Delaware Tobacco Outlet, all of the out-of-state smokers we spoke to said they understood that smoking was bad for their health. Many said there probably was a limit to what they'd be willing to pay for a pack of cigarettes but they also said they'd rather drive to Delaware than quit. Some people, such as Dave, a resident of New Jersey who didn't want to give his last name, said they didn't believe lawmakers really wanted smokers to cut down or quit. Dave says politicians are looking to raise money, and they know smokers are easy targets. "Politicians are taking advantage of smokers, because of their addiction to smoking, and they know they will pay the money. They know you're not going to stop. They're doing it for, you know, they're making revenue. It's like they don't like drunk driving," he says. "But if they had no more drunk drivers in New Jersey, they would lose mega millions of dollars from the surcharges from drunk driving."

Lawmakers in at least 18 states are currently considering legislation that would significantly increase cigarette taxes. Delaware is not one of these states. Neither is North Carolina where last month, a proposal that would have increased the state's cigarette tax from five cents to 75 cents a pack was withdrawn after just ninety minutes of discussion. North Carolina is America's largest tobacco-producing state.