City Desk

D.C. Cigarette Tax Hike Fail

Allow LL to follow up on the new city revenue projections for a second. In his letter to the mayor and D.C. Council, Chief Financial Officer Natwar M. Gandhi informed them that a $.50 per-pack cigarette tax hike implemented last October has not gone as planned.

Because the increase, to $2.50, catapulted the District's rate over Maryland's $2-per-pack rate, Gandhi explains, many Maryland smokers who'd bought their tobacco in the District switched back to buying in Maryland. Add that to all the D.C. smokers who started buying cheap-as-dirt Virginia smokes, and you get the picture—instead of $45.4 million in revenue, Gandhi says the District will only bank $30 million.

But the legislative screw-up is more profound than that: The projections are now that this year's estimated cigarette tax revenues will fall below the pre-hike FY2009 levels ($37.6 million)—in other words, the tax hike got the city less revenue, not more.

Of course, council do-gooders will protest that this is really about a key public-health issue and that they're glad that fewer people are buying cancer sticks in D.C.

All true, and certainly admirable. But that wasn't the thinking at the time the tax was raised, LL can tell you that. The decision was made last July in a closed-door Wilson Building conference room (LL and a few other reporters were allowed inside). The cig-tax hike was on a menu of revenue-raising possibilities presented by Gandhi's office—and taxing smokers was a no-brainer for a legislative body looking to close a $660 million shortfall. LL recalls very little debate about the decision, and little mention of public health.

The good news: Maryland's currently considering another cig-tax hike, to $3.

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Comments

  1. #1

    Laffer Curve 101.

    And somewhere, Carol Schwartz is laughing.

  2. #2

    GREAT NEWS! Fewer smokers will save DC A LOT more money in the long run than what is lost in tax revenues.

    Good for Maryland for understanding this to be the case!

  3. #3

    All hail the demand curve!

    You know, Mike, I was reading yesterday that fifty percent of deaths in DC were from preventable causes:
    http://www.washingtoncitypaper.com/blogs/citydesk/2010/02/24/marion-barrys-crocodile-tears-loose-lips-daily/

    That's okay, though. Tobacco is only the leading preventable cause of death among DC residents. Damn shame we can't ENCOURAGE people to smoke so that we'll lose the revenue sending ambulances to treat heart attacks instead of losing a couple million in cigarette taxes.

    $2.50 a pack doesn't come CLOSE to paying for the per pack negative externalities.

  4. #4

    I wonder how much of the lost revenue is attributable to people quitting smoking, as opposed to smokers just buying their cigarettes in Maryland or Virginia, where the cost of a pack of smokes is much less?

  5. #5

    http://www.tobaccofreekids.org/reports/settlements/toll.php?StateID=DC

    DC spends $78 million every year in Medicaid dollars to paid for smoking-caused illness. And you're complaining about a loss of $7 million?

    Oh, and BS? Maryland is increasing its tobacco taxes.

  6. #6

    Would you care to view the video and comment on your blog? I am very interested in what you have to say. Your opinion matters! Thank you.
    http://www.freedomandprosperity.org/videos/laffercurve1-3/laffercurve1-3.shtml

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