Illinois’ cigarette tax to become one of nation’s highest
A $1 cigarette tax hike included in Gov. J.B. Pritzker’s infrastructure plan will make Illinois’ tax on cigarette packs among the highest in the nation.
On June 1, Illinois state lawmakers passed Gov. J.B. Pritzker’s $45 billion infrastructure plan. Among the handful of tax and fee increases included in that plan is a $1 per-pack cigarette tax hike, bringing the state’s tax on tobacco to $2.98 from $1.98 per pack.
Prior to Pritzker’s capital plan, the state’s tax on cigarettes was 4th-highest in the Midwest and 20th-highest in the country, according to the Tax Foundation. The $1 tax hike will bring the state’s tobacco tax to second-highest in the Midwest – just 6 cents behind Minnesota – and tenth-highest in the U.S.
The infrastructure bill will also impose a statewide 15% tax on e-cigarettes, making Illinois the eighth state in the nation to tax vapor products, according to Tax Foundation research. Cook County and Chicago already tax e-cigarettes at the city and county levels, respectively.
The cigarette tax hike will hit Chicagoans especially hard, who already pay the highest overall cigarette tax burden in the nation. That tax burden will rise to $8.17 from $7.17 per pack, when factoring in state, local and federal tobacco taxes.
Illinois Department of Revenue data shows cigarette tax revenue on the decline in recent years, a possible result of fewer people smoking. In April, Pritzker raised the legal smoking age in Illinois to 21, which will likely further limit the state’s capacity to raise tobacco tax revenue.
Moreover, Illinoisans located near the state line can easily make the trip to a neighboring state where taxes on tobacco are lower. This can also invite smuggling and related crimes from bordering low-tax states.
According to a report from the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, “The incentive to profit by evading payment of taxes rises with each tax rate hike.” By purchasing cigarette packs in a low-tax state and reselling them in a high-tax state, the report estimates smugglers can yield profits as high as $23,000.
States with among the highest tobacco excise taxes lose billions in revenue to smuggling, according to the Mackinac Center, estimating that over half of all cigarettes consumed in New York originate in states with lower excise taxes.
Illinoisans should celebrate the falling popularity of smoking. But Illinois lawmakers should know better than to rely on revenue from taxes raised on a shrinking demographic.