West Virginia lawmakers approved excise tax hikes on cigarettes and e-cigarettes in June to help patch a projected $100 million shortfall in the state’s budget.
The tax hike, signed into law by Gov. Earl Tomblin (D) during a June special legislative session, increases the state’s tax on cigarettes from 55 cents per pack to $1.20 per pack, a 118 percent tax hike. The tax hike took effect in July.
‘A Precarious Position’
Garrett Ballengee, executive director of the Cardinal Institute for West Virginia Policy, says the state’s lawmakers built their budget on shaky ground.
“It’s a precarious position for us to be in, relying on such an unstable revenue source when we’ve already seen problems from doing this type of practice,” Ballengee said. “One of our major industries is natural resources: coal, timber, natural gas. With a severance tax, anytime you sever or extract a natural resource, you tax it. That’s also an extremely volatile revenue source. That’s one of the reasons they had to pass this tobacco or cigarette tax.”
Ballengee says the new tax will hurt small-business owners in West Virginia.
“When people go to the convenience store to buy cigarettes, often they’re not just purchasing cigarettes or tobacco,” Ballengee said. “They’re buying Doritos or gasoline or beef jerky or soda. I don’t think it’s unreasonable to expect small businesses to be disproportionately burdened by this.”
Kevin Callison, an assistant professor of economics at Grand Valley State University, says high excise taxes cause people to make more purchases in other states with lower tax rates.
“There’s pretty good evidence that cross-state border purchasing is prevalent in states that have lower-tax states near them, with populations that are relatively close to those borders,” Callison said. “This could mean that this won’t raise the amount of revenue legislators think [it will]. The more controversial aspect is not whether the taxes raise revenues but whether they impact public health.”
Callison says cigarette-tax hikes are often all about the money.
“In some states, if you see an increase of $1, $1.50, or $2, I think that’s a pretty clear sign that the goal of the tax increase is to improve public health,” Callison said. “When you see states with smaller tax increases, to me that looks more like a way to enhance revenue than to really improve health.”