Minnesota Cigarette Excise Tax

By: Carly Minster, Derrick Parker, and Kangkang Tong  

Historically taxing cigarettes has been a tool for increasing state revenue and to deter people from usage, and it serves this very purpose in Minnesota. The cigarette tax is an excise tax, a tax on specific products like alcohol or tobacco. The cigarette tax first appeared in Minnesota in 1947 at $0.03 per pack.  Many entertainment mediums glamorized smoking like the “Raleigh Cigarette Program,” a comedy show featuring Red Skeleton but a cultural shift began when doctors noticed negative health effects from smoking during the early 1950s. The Minnesota cigarette tax steadily rose over the years to the current rate of $2.90 a pack. Also during this time smoking bans were put into place in the majority of public spaces which include hospitals, school zones, restaurants, and public parks. Compared to other states, Minnesota’s cigarette tax is an accepted revenue generator. The highest cigarette tax is located in Massachusetts, at $3.51. Missouri has the lowest cigarette tax at 17 cents per pack. The tobacco tax is fairly easy to collect which makes it relatively efficient. As long as tax rates are not raised too high, people will continue to pay the rates and not travel to neighboring states to get cigarettes for a cheaper price. But there may be some concern about black markets since law enforcement in Minnesota has already prosecuted a few cases.

The cigarette tax is regressive: disproportionately affecting low income populations since the total purchase cost of a pack of cigarettes would account for a larger portion of a small income. One such population is the elderly that often live on a fixed income comprised of just retirement or entitlement benefits. Ideally this would discourage lower income users from continuing to use cigarettes but this is not always the case. Policy makers would hope, from a public health standpoint, that the sustainability of a cigarette tax would be impossible for long-term. But the tax has been a stable source of revenue during recent decades, in part because it is difficult for people to quit once they get addicted. That is partly why it is so feasible, both economically and politically. Politicians can sell the tax on its health merit while knowing that the state coffers will be filled by those addicted to smoking.

Hyperlinks:

1. For a synopsis of the bill: http://www.house.leg.state.mn.us/hrd/pubs/ss/sscigtax.pdf
2. Does the tax change behavior?: http://www.startribune.com/lifestyle/health/208965591.html?page=1&c=y
3. History of tobacco use in U.S.: http://archive.tobacco.org/resources/history/Tobacco_History20-1.html
4. Explanation of the tobacco black market: http://www.syracuse.com/news/index.ssf/2015/02/ny_leads_nation_in_smuggled_cigarettes.html
5. For some brief history on the tax and concerns about its affect on low income populations: http://watchdog.org/84280/mn-plans-2-billion-tax-increase-ushers-in-smoke-and-tax-era/
6. Historical data on cigarette tax revenue: http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=403&Topic2id=80