Georgia sold 544 million packs of cigarettes in 2010, earning $201 million in state tax revenue. A new study by a UGA researcher suggests a $1 tax increase would decrease consumption by 20 percent and almost triple tax revenues. The same tax is estimated to have similar effects in nine other states.
A recent study by associate professor of psychology James MacKillop, published in the journal Addiction, estimates a $1 per pack tax increase would generate a 197 percent increase in tax revenue, yielding almost $600 million in state tax revenues.
The study assessed 1,056 smokers in Georgia, Rhode Island and South Carolina to evaluate how estimated purchasing decisions were affected by price increases, with prices varying from free to $20 per pack.
“As price goes up, consumption goes down, which reflects how much the product is valued,” said MacKillop, who directs the behavioral economics and neuroeconomics workgroup in the university’s Institute for Behavioral Research.
MacKillop’s research highlights the effects of price on cigarette consumption and how price changes impact tax revenues. Georgia’s current tobacco tax is $0.37 per pack, nearly the lowest in the country, and a pack of cigarettes costs on average $4.37, which ranks 48th nationally. Meanwhile, the Centers for Disease Control and Prevention estimate the state tobacco burden—numbers resulting from health-care costs and lost productivity—to be $9.02 for every pack sold in Georgia.
The study also looked at the -effects a $1 tax increase would have on tobacco burden, estimating a savings of $976 million in Georgia.
“These findings suggest a $1 tax increase is a win-win situation,” MacKillop said. “The price increase generates more in tax revenue and saves money in health-care costs and lost productivity. Plus, a tax increase may ultimately create an environment where fewer people start smoking and more people try to quit smoking.”