Declining Cigarette Use Lowers Wisconsin Tax Revenue

Cigarettes. Cigarettes. Photo is in the Public Domain.

Vaping is poised to outpace the popularity of cigarettes. But a new report highlights how the shift could cost the state tax revenue.

The report from the Wisconsin Policy Forum looks at the tax revenue impacts of changing consumer behaviors around smoking and use of alternative nicotine products.

It found that revenue from Wisconsin’s cigarette tax was just under $370 million for the fiscal year ending June 2025. That’s the lowest amount since 1992 in inflation-adjusted dollars, and represents more than a 60 percent decline from peak revenue from cigarette taxes in 2010.

Mark Sommerhauser, communications director for the Wisconsin Policy Forum, said just like the rest of the country, Wisconsin has seen a steady decline in cigarette smoking. At the same time, the use of e-cigarettes and other alternative products like nicotine pouches have rapidly increased.

“There’s just a big shift taking place in how consumers buy and use these products,” Sommerhauser said. “That’s reflected in a lot of the changes in the tax revenues that the state is collecting.”

While Wisconsin has the 18th highest cigarette tax in the U.S., the state ranks among the bottom for taxes on vaping products, according to the report. It points out that the state’s tax also does not currently apply to vaping fluid sold separately from an e-cigarette device.

Since taxes on vaping products were first collected in 2020, the tax revenue increased more than 500 percent in five years. Sommerhauser said the rapid growth is likely to continue with increasing use of e-cigarettes.

“It’s just that the rate is so low that that’s not going to produce nearly enough revenue to offset what the state is losing from having fewer cigarette smokers,” he said.

At its peak in 2010, nearly $6 out of every $100 going into the state’s general fund came from taxes on nicotine products. The report found that share has declined to just over $2 based on data from 2024.

Sommerhauser said revenue from the state’s income taxes and sales tax are much larger contributors to the general fund, which helps fund schools, health care and other services.

But he said the decline in tax revenue is still an effect that policymakers should keep in mind as they consider whether to raise taxes on vaping products, create a new tax on nicotine pouches or even legalize the sale of marijuana.

Some public health advocates say the decline in revenue is worth the savings from decreased nicotine use.

Molly Collins, advocacy director for the American Lung Association in Wisconsin, said use of cigarettes and nicotine products leads to higher medical costs, including those with Medicaid insurance funded in part by the state.

“The more we can get folks to never start or to quit smoking, the more money our state will save in the long term,” Collins said.

Collins said adolescents are “extremely price-sensitive” consumers of cigarettes, and every increase in taxes on cigarettes leads to a decline in the number of kids who start smoking. She said higher costs can also offer new motivation for adults to quit smoking.

The comparatively low cost of vapes and nicotine pouches is part of why these products are more popular among young people, Collins said. She said they often carry more nicotine than a regular pack of cigarettes, but can be harder for parents and teachers to identify.

“The tobacco industry has stayed one step ahead of us, and they are creating new products to expand their market and increase their profits,” she said. “I think we could be doing more in our state to at least catch up to them and say, ‘Listen, we need to tax these products at an equal rate to cigarette products.’”

Declining cigarette use, popularity of vapes impact Wisconsin tax revenue was originally published by Wisconsin Public Radio.