Gov. Kulongoski’s massive 80+ cent cigarette tax increase will spell trouble for Oregon’s cities and counties. Oregon cities and counties currently get only 2.3 cents of the 118 cent cigarette tax. This is a tiny 1.93% of total revenue and it makes local governments vulnerable to what the state is about to do. It is common knowledge that the new tax will significantly decrease cigarette purchases due to evasion, internet sales, cross border, mail delivery, and losing the big price advantage from Washington. The proponents even testified that they know this tax jump will force people to quit smoking altogether and they wanted to catch the revenue why they still can.
Their solution to the predictable decline is to hike up the tax really high to avoid missing a single tax penny. This means that cities and counties with their set 2.3 cent proceeds are all but guaranteed to shrink in the expected decline. Local government once again gets left behind by the state’s new laws. The over-taxation of tobacco is putting the effectiveness and original purpose of the tax in jeopardy, with local government paying the price. Overtaxtaion of any product works against the goals of acquiring a healthy, predictable and fair tax revenue stream.