Lowering Cigarette Taxes?

Three states bucking trend by proposing tobacco tax cuts

CONCORD, N.H. -- Bucking a national trend of raising cigarette taxes, New Hampshire, New Jersey and Rhode Island have considered reducing their cigarette taxes, hoping to draw smokers from other states and increase revenue, reported the Associated Press.

Supporters argue reducing the tax by a dime would make New Hampshire more competitive with Maine, Vermont and Massachusetts, while opponents say that even if the state experienced higher sales as a result it still would lose millions of dollars in revenue.

It is very unusual for states to lower the tax, University [image-nocss] of Illinois at Chicago economics professor Frank Chaloupka said. The increase in sales is not enough to offset the drop in state tax revenue, he said.

Instead of lowering the tax, states have enacted 100 increases over the past decade, he said.

"New Hampshire has been going in the same direction as the rest of the country, basically forever," Chaloupka told the news agency.

New Hampshire raised its tax repeatedly since Democratic Governor John Lynch took office in 2006, increasing it from 52 cents per pack in 2005 to $1.78 currently.
That changed earlier this month, when the state House passed a bill that would cut the rate 10 cents to $1.68 per pack in hopes of attracting smokers from surrounding states with higher taxes.

Rhode Island's bill would cut its tax by $1, to $2.46 per pack. New Jersey last year considered reducing its tax 30 cents, to $2.40 per pack, but has not followed through on it, the report said.

New Hampshire Senate Finance Chairman Chuck Morse said he believes the Senate will support the cut. "I think it's a positive sign for business. I think it will provide revenue in the long run," Morse (R) told AP.

If approved by the Senate, the cigarette tax cut bill would go to the governor, who does not support it, the report said. But the House and Senate, led by Republicans, could override a veto by the governor, saving cigarette smokers 10 cents a pack.

New Hampshire has historically looked to export its tax burden--and any resulting health costs--to other states through taxes on products such as tobacco and alcohol it sells to its residents, said the report. "That's always been the way we run our tax structure," Mike Rollo, spokesperson for the American Cancer Society in New Hampshire, told AP. "We've always tried to tax people from out of state."

Danny McGoldrick, research director for the Campaign for Tobacco-Free Kids, said other states are not cutting their tax rates in these tough fiscal times because they need the money. Raising the tax, he claimed, produces revenue despite resulting in a desired decrease in the number of smokers. "These smoking declines, of course, save lives and health care dollars as well," he told the news agency.

The New Hampshire Grocers Association has consistently criticized the tax increases as hurting small businesses, particularly along New Hampshire's state line. Association president John Dumais said cutting the rate a dime would cost the state tobacco tax revenues but would result in an offsetting increase in state taxes collected from people renting hotel rooms, eating in restaurants, buying alcoholic beverages, buying lottery tickets and buying gasoline. The net result would be no loss of revenue to the state but an incentive for tourists to visit the state to shop, he said.

"People coming from out of state are going to have an empty gas tank. They're going to be hungry. They're going to be tired," he told AP. "It's going to help every business."

State Representative Patrick Abrami (R) made that argument during the House debate. "We have reached the tipping point," he said. "We are hurting our merchants. We are losing sales on our borders."

But State Rep. Christine Hamm (D) called the move "fiscally stupid." He added, "No state has cut their tobacco tax and seen a revenue increase."

The House voted 236 to 93 to send the bill to the Senate anyway.

Lynch spokesperson Colin Manning, who said the governor does not support the tax cut, pointed out New Hampshire's tax rate already is the lowest in the region.

Massachusetts' tobacco tax rate is $2.51 per pack; Maine's is $2; Vermont's is $2.24; Connecticut's is $3; and Rhode Island's is $3.46. Unlike the other states, New Hampshire has no sales tax.