Gov. Mark Sanford’s recent cigarette tax veto is clear evidence he recognizes that many states have made such tax increases in the past only to be “surprised” by a revenue shortfall later (May 27, “SC governor vetoes cigarette tax increase”). The decline in tobacco use nationwide, along with tax and regulatory factors, have caused such revenue streams to flatten, thereby forcing legislators to find tax increases elsewhere to fill the gap. As a recent National Taxpayers Union study found, “Cigarette tax hikes may encourage other [tax] increases because the extra revenue often is tied to specific spending schemes (such as health care or education) and tobacco use rates are falling along with potential tax collections.” (emphasis added)
In 2007, for instance, the New Jersey legislature passed a 17.5 cent cigarette tax increase and came up $23 million short from the prior year’s revenue. Gov. Sanford understands this and realizes that non-smoking South Carolinians would end up having to foot the bill when such an unstable tax revenue begins to dry up.
John Nothdurft ([email protected]) is a legislative specialist for The Heartland Institute