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1 Justin Higginbottom, Georgia Should Refrain from Relying on Smokers to Fill Budget Hole 1 (2010)

handle is hein.taxfoundation/ffcbfxz0001 and id is 1 raw text is: FOUNDATION
March 10, 2010
No. 215

FISCAL
FACT

Georgia Should Refrain from Relying on
Smokers to Fill Budget Hole
By Justin Higginbottom
Introduction
Some Georgia legislators have proposed increasing cigarette taxes from 37 cents to $1.37 as a
way to help close the state's projected $1 billion deficit-the result of an over 12 percent drop in
tax collections from last year. Like other states, Georgia is struggling fiscally during times of
decreased consumer spending and increased demand for state services. And as in other states,
legislators are looking for products to tax as a way to balance the budget. The $1 cigarette tax
increase is supposed to raise an additional $354 million per year from smokers.
Advocates of such a drastic cigarette tax increase should consider its consequences and basis in
sound public policy. A dollar increase in Georgia's cigarette tax would increase the incentive for
border shopping from Georgia's relatively low-tobacco-taxed neighbors as well as cigarette
smuggling. The tax itself throws the burden of state financing on one unlucky group of
taxpayers, smokers--a demographic in which lower-income individuals are overrepresented.
Raising cigarette taxes has proven popular for states during this recession, but that does not mean
Georgia should follow. Georgia should resist the temptation of cigarette tax increases.
Cigarette Competition: Shopping and Smuggling
Looking at Georgia and the neighboring states' cigarette taxes (see map), it is obvious that a $1
per pack increase will put the state at a comparative disadvantage for cigarette sales. Georgia
will have higher rates than all its neighbors. This might lead to lower-than-expected tax revenue
for the state and provide incentives for criminals-rather than the state-to profit from Georgia's
high-priced cigarettes.

Justin Higginbottom is an analyst at the Tax Foundation.

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