Cigarette taxes can’t fix Medicaid

It looks like Gov. Quinn may be pinning his hopes of finding Medicaid savings by raising cigarette taxes. This isn’t the first time Gov. Quinn has floated his $1-per-pack tax hike on cigarettes. So I was glad to see that Sen. Dale Righter and Rep. Patti Bellock, members of the Medicaid reform working group, have voiced their opposition to...

It looks like Gov. Quinn may be pinning his hopes of finding Medicaid savings by raising cigarette taxes. This isn’t the first time Gov. Quinn has floated his $1-per-pack tax hike on cigarettes. So I was glad to see that Sen. Dale Righter and Rep. Patti Bellock, members of the Medicaid reform working group, have voiced their opposition to the increase. The Institute has previously highlighted why hiking taxes on cigarettes to pay for out-of-control spending is bad public policy:

• Raising cigarette taxes rarely brings in as much revenue as predicted. An analysis of 57 state tobacco excise tax increases found that 72 percent of the tax hikes failed to bring in the expected revenue. In some cases, revenues actually decreased. New Jersey, for example, raised its cigarette excise tax by 17.5 cents in 2006, expecting to raise an additional $30 million, but the state’s tobacco revenues actually fell by $24 million.
• Raising taxes encourages greater tax avoidance. With the Governor’s proposed tax hike, Illinois would have one of the highest per-pack tobacco taxes in the region. That gives consumers strong incentives to travel to neighboring states where they can save $1-per-pack or more. This is especially true for Chicago residents, who are hit with another $2.68-per-pack tax from Chicago and Cook County governments.
• Raising taxes encourages commercial smuggling rings. A study by the non-partisan Mackinac Center for Public Policy found that if Illinois were to increase its cigarette taxes by $1-per-pack, tobacco smuggled into the state would account for 26.3 percent of total cigarette consumption (compared to only 5.9 percent, today).
• State taxpayers will be on the hook when tobacco revenues fall short. Tobacco taxes are notoriously unreliable sources of state revenues. And, as noted above, tobacco tax hikes rarely bring in the revenue expected or needed to sustain growing social programs. So what happens when the tobacco tax hikes don’t generate the revenue needed? A study by the National Taxpayers Union found that 70 percent of tobacco tax hikes were followed by other state tax increases within 2 years.

The fundamental problems with the state’s Medicaid program are structural. The program is spending more and more state tax dollars with less and less to show for it. This isn’t a revenue problem; it’s a spending problem. That’s why Illinois needs comprehensive solutions that reduce spending, increase access to necessary care, empower patients to make healthier, cost-conscious choices and avoid trapping the poor into a system of government dependency.