Interpreting State's Drop In Cigarette Sales
A recent report showed fewer cigarettes are being bought in Maryland. There seems to be much debate over whether it's economic concerns limiting people's spending power, smokers trying to quit or simply folks finding their cigarettes in neighboring states.
Sales are reportedly down 25 percent year to date since the per-pack tax was doubled to $2 in January. That 25-percent drop will mean an estimated $20 million to $25 million less in revenue for the state this year. The state had forecasted a 17-percent drop in sales with the new tax.
Some say the reduction in sales is a result of smokers cutting back on their habit or quitting altogether because of the extra $1 per pack or additional $10 per carton. It's suggested the tax increase led folks to give up their habit. Others say it's more a result of smokers going elsewhere, such as Delaware and Virginia, where taxes are much lower, to buy their cigarettes. Still others say people are cutting smoking out of their lives because they are struggling financially and can't afford to continue. The pinch is getting them and it's not the tax that's doing it, although it can't help. The question is whether people are cutting costs to the extent it affects their habit and whether they view cigarettes as a matter of disposable income.
We believe the reduced sales is probably a combination of all three, but, at the risk of being cynical, we think people are just buying outside Maryland, particularly Virginia where cigarettes are much cheaper, thanks to a 30-cent tax.
It's unclear exactly what is driving down cigarette sales, but what's disturbing to us is health advocates, along with some state officials, are contending the doubling of the cigarette tax has resulted in fewer people smoking today than they were pre-$2-tax in January. We don't buy that assumption. If it's true that less people are smoking in Maryland now, and that's highly debatable, we find it hard to believe the $1 tax increase is the sole reason.
When the legislature was considering this 'sin tax' increase during a special session last fall, there was all sorts of propaganda being thrown around how it was necessary to combat the health dangers associated with smoking. The thought being adding a buck in tax would address two evils at once - it will help the state recover revenue to address its budget shortfall as well as encourage Marylanders trying to quit by taking away more of their money.
Using the health implication was an easy smokescreen for legislators to refer to, particularly Republicans, who know it's against party philosophy to raise taxes. The motivation behind this increase was pure finances. Any health benefit from it is simply an unintended bonus and that's being used as justification since the financial goal has backfired.
It seems to us touting the so-called health benefit of the increase is a bit lame. It's an obvious way to justify the tax hike. It's a means to tout the cultural advantages when the predicted financial implications have not panned out. What will be interesting to see is how the state makes up for the unexpected revenue loss in the next budget. It will have to be through spending cuts, but what exactly is dropped to make up the difference should prove compelling.