Tobacco Tax Could Nearly Close Budget Gap

Feb 5, 2013

Gov. Bobby Jindal's tax reform proposals may include raising the tobacco excise tax. Health officials have suggested raising the tax by a dollar per pack. A study shows raising the tax by that much would raise $223 million a year – that’s almost enough to have closed this year’s $240 million budget gap. 

Jindal has said his tax reforms would be revenue neutral, replacing the income tax with higher sales tax.

Credit Geierunite / Wikimedia Commons

Some opponents of raising the tobacco tax worry that this tax would be too unstable – because as the tobacco tax goes up, the number of smokers goes down, and so then, do revenues.

Dr. Frank Chaloupka has studied the effects of tobacco tax increases around the nation. He says revenues typically don’t fall off for 20 to 30 years. That’s because the decline in smokers isn’t proportionate to the tax increase. Most of the smokers that quit are young, so the smoking base to draw from is smaller down the line.

Raising the tobacco tax would not only mean more money to spend, but it would also save the state money on Medicaid costs. 

“It’s going to start almost immediately, the cost of low birth-weight births from mothers that smoke during pregnancy," Dr. Chaloupka said. "You start to see reductions in things like heart-attacks and strokes relatively quickly.”

Jindal says his reforms will stimulate the Louisiana economy. Dr. Chaloupka says raising the cigarette tax is in line with that thought – less smokers means a healthier workforce.