Preckwinkle’s proposed $1 per-pack cigarette tax hike doesn’t add up

Since 2002, cigarette taxes increased 105 times across the country. Cook County Board President Toni Preckwinkle wants to make it 106. To help fill Cook County’s $267.5 million budget shortfall, Preckwinkle has proposed increasing the per-pack tax on cigarettes by $1. The tax hike is only expected to bring in about $25 million in new revenue. Preckwinkle’s new money...

Since 2002, cigarette taxes increased 105 times across the country.

Cook County Board President Toni Preckwinkle wants to make it 106.

To help fill Cook County’s $267.5 million budget shortfall, Preckwinkle has proposed increasing the per-pack tax on cigarettes by $1. The tax hike is only expected to bring in about $25 million in new revenue.

Preckwinkle’s new money grab won’t work. In fact, the tax hike will simply push smokers to purchase their cigarettes outside of Cook County. Bumping up prices also encourages criminal behavior and smuggling, and in the end Preckwinkle’s increased cigarette tax will probably miss the $25 million revenue mark.

Here’s why the cigarette tax hike is bad public policy:

• Chicago has the second-highest cigarette tax in the country. If passed, the Cook County tax hike would increase the total federal, state and local cigarette tax in Chicago to $6.67, second only to New York City’s $6.86 rate.

• Illinois already hiked the cigarette tax by $1 this year. The Illinois General Assembly recently passed a $1 tax hike on cigarettes, effective June 24. Already admitting failure, the Illinois Department of Revenue originally estimated that the tax hike would bring $350 million in new revenues but has recently reduced its estimate to $237 million.

• Cigarette revenues in Illinois are down. Even with the tax hike earlier this year, recent data show that Illinois’ cigarette revenue is down $20 million from this point in fiscal year 2012.

• Cigarette tax hikes rarely bring 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. Instead, the state’s tobacco revenues actually fell by $24 million.

• Raising cigarette taxes encourages greater tax avoidance. Increasing Illinois’ already high cigarette tax simply gives consumers a stronger incentive to travel to neighboring states where they can save $1per-pack or more. This is especially true for Chicago residents, who are already hit with another $2.68 per-pack tax from Chicago and Cook County governments.

• Raising cigarette taxes encourages commercial smuggling rings. A study by the nonpartisan Mackinac Center for Public Policy found that a $1 per-pack tax hike on cigarettes would lead to more criminal behavior and cigarette smuggling. In fact, the study estimates that tobacco smuggled into the state would account for 26.3 percent of total cigarette consumption (compared with only 5.9 percent before the tax hike).

• Taxpayers will be on the hook when tobacco revenues fall short. Tobacco taxes are notoriously unreliable sources of state revenues. A study by the National Taxpayers Union found that 70 percent of tobacco tax hikes were followed by other state tax increases within two years.

Instead of attempting to fill the budget gap by punishing smokers, Preckwinkle should focus on structural reform, which even she admits Cook County needs.