Federal Cigarette Tax Increase will Reduce PA Tax Collections by $140 Million

A new report from the Tax Foundation looks at the cost of the recent federal tax hike on cigarettes, an increase of 39 cents to $1.01 per pack, state by state.   The analysis finds that Pennsylvania smokers will pay $272 million in additional taxes.  However, because of a decline in cigarette sales from the higher tax (or rather, a decline in reported, taxed cigarette sales), the state will lose $140 million in revenue. 

This at the same time Governor Rendell is proposing a state cigarette tax hike of his own, to help fill the budget gap.  Even without a tax rate increase, revenue from the state cigarette tax has been declining – from $856 million in 2003-04 to an estimated $782 million in 2008-09.

This on the heals of a state report that state lottery revenues have been stagnant over the past few years, and counties with a slots casino have seen lottery sales decline – a trend likely to be problematic as additional casinos open.  And as mentioned previously, it is still unclear whether the slots revenue will be enough to provide property tax “relief” this year at all.

All in all, it doesn’t look like taxing the vices of (mostly poor) Pennsylvanians is paying off.