State chokes on revenue shortfall
State tax revenues generated by the 2012 tax increase on cigarettes have fallen short of expectations.
Since the entire political debate over raising taxes on smokers is dishonest, it ought to be no surprise that revenue estimates based on that dishonest debate have proved to be unreliable as well.
Last year, when state legislators were preparing to approve a $1-a-pack increase on cigarettes, so-called experts predicted the tax hike would generate an additional $350 million to support the state's Medicaid program. Further, they said that federal funds matching the additional cigarette tax revenue would produce an additional $350 million for Medicaid and that the combination would go a long way toward filling the financial hole created by this massive welfare program.
Now a legislative oversight committee has revealed that the new tax has raised just $212 million in new revenue, 40 percent short of estimates. That means that Medicaid, because of the revenue shortfall and the reduced match, will have $276 million less than originally believed to pay for the health care costs of the poor.
It is through such irresponsible tax forecasting that Illinois' de facto bankruptcy has been built. The state spends money it doesn't have based on projections that aren't reliable, and financial disaster ensues. Ironically, the cigarette tax hike was supposed to be a partial solution to Illinois' financial problems.
Instead, it reveals once again that raising taxes causes changes in consumer behavior experts can't seem to anticipate and highlights the hypocrisy behind arguments for taxing cigarettes at an astronomical level.
Tax hike supporters say the price of cigarettes should be increased as a means of discouraging people from engaging in this unhealthy practice. But the real goal is not reducing smoking, it's increasing tax revenues from smokers.
It was just a year ago when legislators increased the state's cigarette tax from 98 cents per pack to $1.98. The increase gave Illinois the third highest tax rate among its border states, with only Michigan and Wisconsin exacting a higher levy. Missouri (17 cents per pack), Kentucky (60 cents) and Indiana (99 cents) tax cigarettes at a substantially lower level, and it didn't take a genius to realize that thousands of smokers would go elsewhere to feed their habit.
That, of course, is not the only reason for the revenue shortfall. Some consumers purchased large quantities of cigarettes in advance of the tax increase while others shifted to less costly roll-your-own tobacco and electronic cigarettes.
Some people, no doubt, quit outright, eliminating this health risk from their lives. But this was always about the money. That's why state officials are complaining that they didn't get as much as they planned to spend.