New Hampshire Gov. John Lynch (D) has proposed his fifth cigarette tax increase in five years. The 20 cents-per-pack increase would bring New Hampshire’s cigarette tax to $1.98 per pack, well above the national average.
In a state that has historically celebrated its resistance to taxes, the governor and many legislators have been unusually sympathetic to such “sin” tax hikes in recent years. Sound tax policy, however, requires legislators to be as suspicious of tax hikes on cigarettes as any other taxes. Tobacco taxes are a notoriously unreliable and dwindling source of revenue, are highly regressive, discriminate against a minority of the population, and are embedded into the product’s price to disguise their existence.
Targeted tax increases such as these typically fail to fix budget deficits. Many businesses rely heavily on having cigarette and sales taxes lower than those across the border. A tax hike, especially in time of recession, would virtually eliminate the significant competitive edge these businesses currently enjoy. Combine this with tobacco’s narrowing tax base, and it is highly unlikely the proposed tax will meet revenue expectations.
Experience in other states shows that once tax revenues from tobacco and other affected businesses begin to fall short of projections, legislators end up looking for more money from more taxpayers. Implementing real spending reforms and setting realistic spending priorities are the best and least hazardous ways to address the state’s long-term budget issues.
The following articles offer additional information on cigarette tax hikes.
Up in Smoke: Our Tobacco Tax Advantage
This editorial by the Union Leader explains how a cigarette tax increase would hurt businesses in New Hampshire when they can least afford it, noting, “Our cigarette tax advantage would be erased.”
Debunking the “Tax Thee, But Not Me” Myth: Five Reasons Why Non-Smokers Should Oppose High Tobacco Taxes
This National Taxpayers Union briefing notes, “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.”
Research & Commentary: The Best and Worst Ways to Eliminate a Budget Deficit
This Heartland Institute Research & Commentary provides a concise rundown of “dos and don’ts” for dealing with budget deficits and preventing them from happening in the future.
Research & Commentary: Top Ten Reasons Not to Raise Tobacco Taxes
This Heartland Institute Research & Commentary explains how targeted tax increases such as cigarette tax hikes push proposals for sound fiscal policies and real budget reforms to the back burner.
Poor Smokers, Poor Quitters, and Cigarette Tax Regressivity
Dr. Dahlia Remler of the Department of Health Policy and Management at Columbia University explains why cigarette taxes are regressive.
Six Reasons Not to Raise Tobacco Taxes
Economist Dr. William Anderson of the Oklahoma Council of Public Affairs outlines six pitfalls of high cigarette taxes.
Cigarette Tax Hikes Burn Hole in State Coffers
Gregg M. Edwards, president of the Center for Policy Research of New Jersey, reports the state brought in less revenue after its cigarette tax hike.
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 Burnout
Last year Maryland increased its cigarette tax to $2 a pack in order to fund health care, and now the state is facing a billion-dollar budget shortfall. This article describes the budget mess that results when states rely on cigarette tax revenues as smoking rates decline.
For further information on this subject, visit the Tobacco Issue Suite on The Heartland Institute’s Web site, http://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, contact Legislative Specialist John Nothdurft at 312/377-4000 or [email protected].