Raising New Hampshire’s Cigarette Tax Is Bad Tax Policy

Published October 1, 2008

A 25 percent increase in New Hampshire’s cigarette tax, scheduled to go into effect today, has been put on hold until audits can be completed to determine just how much revenue the tax has raised so far this year.

In spring, legislators had voted to increase the tax–from $1.00 to $1.25–if revenues didn’t reach $50 million in the fiscal quarter that ended today.

The citizens of New Hampshire, celebrated for their opposition to income and sales taxes, should be just as suspicious of tax hikes on cigarettes. These taxes are a notoriously volatile source of revenue and unduly burden low-income citizens.

Cigarette taxes are an inefficient and undependable source of funding because of their narrow tax base and the declining use of cigarettes. They rarely raise the revenues projected for them. As a result, smokers and non-smokers alike are often called upon to foot the bill as legislators scurry around in search of additional revenue. A recent National Taxpayers Union study found, “Taxpayers face a seven out of 10 chance of seeing another net annual tax hike within two years of a tobacco tax hike.”

Cigarette taxes are bad tax policy particularly because they single out a small segment of the population, thereby giving non-smokers the misperception that these increase won’t affect them. Cigarette and other “sin” taxes are a bad fiscal policy that nevertheless appeals to politicians wanting to raise revenue without angering most taxpayers.

The following articles offer additional information on cigarette tax hikes.

Debunking the “Tax Thee, But Not Me” Myth: Five Reasons Why Non-Smokers Should Oppose High Tobacco Taxes
According to the National Taxpayers Union, “the per-capita state and local tax burden in high-tobacco tax states is 8 percent above the national average, while the general tax bill for residents of low-tobacco tax states is 15 percent below the national average.”

Poor Smokers, Poor Quitters, and Cigarette Tax Regressivity
Dr. Dahlia Remler with the Department of Health Policy and Management at Columbia University rebuts the argument that cigarette taxes are not regressive.

Tax Hikes Often Fail to Generate Expected Revenues
Economists warn tobacco taxes are an unpredictable source of revenue.

Six Reasons Not to Raise Tobacco Taxes
Economist Dr. William Anderson of the Oklahoma Council of Public Affairs outlines six pitfalls of higher cigarette taxes.

Tobacco: Regulation and Taxation through Litigation
Professor Kip Viscusi breaks down the social costs of smoking, taking into consideration a wide array of factors including health costs, sick leave, and the lower pension and nursing home care costs incurred by smokers.

Cigarette Tax Burns the Poor
David Tuerck, professor of economics and executive director of the Beacon Hill Institute at Suffolk University, outlines how cigarette taxes unfairly burden low-income earners.

Cigarette Taxes Are Fueling Organized Crime
Patrick Fleenor, chief economist for the Tax Foundation, shows high cigarette taxes have fueled organized crime and a profitable black market in New York.

Cigarette Tax Burnout
Last year Maryland increased its cigarette tax to $2 a pack in order to fund health care … but now the state’s budget is facing a billion-dollar shortfall. This article outlines the budget mess that always results when states rely on cigarette tax revenues even as smoking rates decline.

Smoke Tax: Saddling Smokers with Costs of Health Reform isn’t Fair
This Salt Lake Tribune editorial explains that a $2 tax on each pack of cigarettes is not equitable and will disproportionally hurt low-income people. It also outlines how smokers are already contributing an enormous sum of money to Utah’s government.

For further information on the subject, you can visit the Tobacco Issue Suite on The Heartland Institute‘s Web site at www.heartland.org.

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Web site, you may contact Legislative Specialist John Nothdurft at 312/377-4000 or [email protected].