Philadelphia’s Cigarette Tax Falls Short

Philadelphia collected nearly $59 million in cigarette taxes between July 2015 and June 2016. Well below the $77.5 million originally anticipated by state lawmakers, according to Anna Orso of Billy Penn.

Not only did the tax underperform, but officials estimate revenue from the $2 per pack levy will continue to dwindle over the next three years before it’s phased out in 2019. The unreliability of cigarette tax revenue isn’t unique to Philadelphia.

When lawmakers hiked cigarette taxes in New York and Washington D.C., revenues declined shortly afterward. In fact, in 32 cases studied between 2009 and 2013, tax revenues met or exceeded expectations in only three instances.

Banking on a declining revenue source that targets the poor to fund a surge in state spending is a recipe for personal income or sales tax increases.

In addition to cigarette taxes, lawmakers are considering excise taxes on cigars, smokeless tobacco, and e-cigarettes. But slapping an excise tax on these products could drive jobs out of the state. One entrepreneur actually left New York to set up his cigar shop in Pennsylvania because the business climate was better:

Arthur Zaretsky, president of Famous Smoke Shop, said he moved his business from Manhattan to escape New York's cigar tax, which jumped from 15 percent to 75 percent.

Pennsylvania's business climate was more welcoming, he said, “but we could be anywhere.”

Plenty of states have better tax climates, but lawmakers can keep jobs here if they hold the line on taxes, control spending, and work toward reducing the overall tax burden.