Illinois Cigarette Tax Increase Awaits Gov. Quinn's Signature

While most of the attention in the cigarette industry has been on California's bid to raise the state's cigarette excise tax by $1, Illinois lawmakers passed an identical hike last week with little fanfare. State legislators gave their final approval on a measure to increase taxes on cigarettes and other tobacco products in an effort to hold off deeper cuts to Illinois' health care program for the poor. The $1-per-pack hike more than doubles the current tax, which has held steady at 98 cents for several years, according to the Chicago Tribune.

 The measure was sent to Gov. Pat Quinn for his signature. The governor has come out in favor of the increase. "Increasing the price of cigarettes will decrease smoking-related costs to Medicaid, which came to $1.5 billion last year. This legislation will help 60,000 people quit smoking, prevent 60,000 deaths from smoking-related conditions and keep 80,000 kids from taking up smoking in the first place," the governor said in statement."By working together to pass these bills, strong progress has been made in our mission to restructure Medicaid, so that it serves as a health and wellness system instead of a provider-payment system. As a result, our Medicaid system will continue to serve the millions of Illinois residents who rely on it.

 "I look forward to signing the bills to preserve and restructure our Medicaid system, as we continue to take important steps to restore fiscal stability to Illinois," he added. The $1 increase will bring the cost of a pack of cigarettes in Chicago near-New York City levels. Current local and state taxes on a pack of cigarettes in Chicago are $3.66, according to the anti-smoking Campaign for Tobacco-Free Kids. The $1 increase would bring the combined tax rate to $4.66 in Chicago, behind only the $5.85 per pack rate in New York City, the newspaper reported. Illinois' cigarette tax now ranks 32nd among the states and the District of Columbia.

The state would move up to the 16th highest tax rate, behind states that levy $2 or more for a pack of cigarettes. A spokesman for tobacco retailers predicted sales of cigarettes would drop by about 20 percent because of the tax increase. An official for the so-called roll-your-own cigarette machine industry said new taxes and regulations would essentially ban the machines in Illinois, the newspaper added. However, in an analysis late last week, Bonnie Herzog, managing director, beverage, tobacco and consumer research at Wells Fargo Securities, said that the Illinois increase (and a possible one in California) will only cause a temporary volume disruption, as CSNews Online previously reported.

"We feel that, after an initial shock, these increases would be absorbed as consumers become conditioned to accept higher price points," she said. "In other words, we don't see an incremental negative volume impact that would alter the long-term industry decline rate of approximately 3.5 percent."