The Effects of the Cigarette Excise Tax on State Smoking Rates, Healthcare Costs, and Beyond

During fiscal policy debates, increases in income and property taxes incite noticeable public protest, while parallel increases in "sin taxes" rarely receive an equal amount of attention. But the manipulation of these taxes may produce important costs and benefits for states. The excise tax on cigarettes is a particularly interesting case as its benefits depend on its indirect ability to decrease healthcare costs though reductions in smoking rates. This study tests whether a higher state tax rate decreases cigarette consumption, and thus, lowers tobacco-related healthcare costs. To examine this question, fixed effects multiple regression models are employed, using panel data from the Centers for Disease Control and Prevention (CDC) from 1996-2010 for all states and controlling for anti-tobacco program funding, population, and economic conditions. The final results show that significant predictive relationships exist between measures of cigarette consumption as related to price, yet these relationships only hold in predicting adult smoking rates (negative relationship), cessation rates (positive relationship), and pack sales per capita (negative relationship). Tax increases do not affect adult daily cigarette consumption rates in a significant way. Similarly, state funding for tobacco-control programs has little effect on consumption behavior. Hence, increases in cigarette taxes may be one of the main factors acting upon quitting behavior among adults, while not affecting the number of cigarettes a smoker consumes. The policy conclusions of these results – while hesitant – promote higher cigarette taxes as to curb smoking rates and indirectly ameliorate healthcare burdens