Richmond Mayor Levar Stoney has proposed a 50-cent cigarette tax as part of his 2020 budget, and tax experts say it will likely fall disproportionately on low-income residents.
Research has shown that cigarette taxes, like other taxes on purchased goods, are regressive. With regressive taxes, low-income people spend a larger amount of their income on the tax. Poor Virginians and minorities also smoke more cigarettes, according to the Virginia Department of Health.
Hayes Holderness, a tax policy expert at the University of Richmond, says those two facts lead him to believe there will be a disparity in who will pay for Richmond’s cigarette tax if it is passed by city council.
“We can definitely assume that the consumers who are going to bear the tax will be disproportionately low-income individuals,” he said.
Some economists argue that the burden cigarette taxes place on the poor can be mitigated if poor people also receive more of the benefit from how the money is spent.
When asked about his proposed tax, Stoney made a similar argument. He said those who are struggling the most will benefit the most with the $3.1 million in projected revenue from the 50-cent cigarette tax paying for repaving roads and Richmond Public Schools.
“This will invest in their schools, where a number of our kids attend, and also invest in their neighborhoods as well,” he said. “You drive down Mechanicsville Turnpike or down Mosby and you have to dodge potholes all day.”
But the money from the proposed cigarette tax increase will not be earmarked for the city’s poorest neighborhoods. And better roads are a benefit that is distributed across income levels, says Tracy Gordon, a senior fellow at the Urban-Brookings Tax Policy Center.
"If anything, I’d think that people at the bottom are mostly on public transit,” she said. “Perhaps in that sense, they are benefitting, but if you’re talking about spending for commuters who are driving long distances, those tend to be higher-income people.”
Gordon cautioned that calculating who benefits most from spending can be more difficult than calculating the effects of a tax.
Richmond City Council, who will need to approve the cigarette tax, failed to do so when an 80-cent tax was proposed by member Parker Agelasto last year. It died on a 6-3 vote. So far, only council member Michael Jones has indicated he’ll change his vote from a no to a yes this time.
Experts say some of the concerns raised by council members about the tax have merit. Council member Reva Trammell, who represents parts of Southside, has argued that Richmond’s geography means people could easily decide to purchase cigarettes in the surrounding counties. Under Virginia law, only cities can institute a tax on cigarettes.
A 2008 national study showed between 13 and 25 percent of consumers choose to purchase cigarettes in bordering jurisdictions if taxes are lower. Holderness said lack of a similar tax in the counties could also compound the disparities of who pays it.
“When it’s easy to get out of the city, out of the taxing jurisdiction, then policymakers need to think really hard about which tax bases are mobile, as opposed to those who really can’t escape the jurisdiction,” Holderness said.
The ease of tax avoidance at a local level is one of the reasons 97 percent of cigarette taxes in the U.S. are collected at the state level. Some public officials tout the health benefits of taxing cigarettes and alcohol in addition to increased revenue. Mayor Stoney said at a recent press conference that the proposed tax increase also speaks to the need for “health equity.”
“We need to ensure that the folks who do live in some of the low-income areas of our city are healthy residents,” he said. On that front, research shows taxes on cigarettes do lead to a reduction in smoking.
Andrew Barnes, a public health researcher at Virginia Commonwealth University, said studies show there is a three to five percent decline in cigarettes smoked for every 10 percent increase in the price of cigarettes. He says based on the proposed 50-cent tax, research suggests Richmond could see a similar decline in smoking. But because there are now alternatives that won’t be affected by the tax, like e-cigarettes, that reduction might not be a given.
“There is a concern that if you change taxes on cigarettes without changes to other tobacco products, some people are going to switch or offset some of their reduction in smoking cigarettes by increasing using other tobacco products like e-cigarettes,” he said. “If people are dual-using these products then they probably aren’t better off over time.”
Richmond City Council will deliberate on the proposed tax in the coming months. They’ll have until the end of May to pass a balanced budget.