Saturday, July 2, 2011

Proposed Tobacco Tax Hike Questioned

May 18, 2010 by admin  
Filed under Business

It is no breaking story that New Hampshire, like essentially every other state in the union, is facing a gaping budget deficit, in our case to the tune of nearly $300 million. With less than two weeks to go before the state must finalize its budget, however, various proposals to close the gap have been put forward, including ordering 12 unpaid furlough days for state workers, cutting 30 employees from the state youth reformatory, and new taxes on estates. This all follows Governor Lynch’s pursuit of one very specific method of “closing” the gap as he eyes an unprecedented 4th term, and which observers are not sure is completely off the table as yet: Increasing the Granite State’s cigarette tax by 20 cents a pack.

The push follows a nearly 50 cent per pack increase having been put through last year. Lynch claims that this further tax increase would bring in $12 million. However, skeptics say the real figure is likely much lower, and that those who bank on cigarette taxes as a reliable method of filling budget holes are doing little more than setting themselves up for future budget headaches. Last year, as numerous states contemplated cigarette tax increases to improve the overall health of state public finances, the libertarian Reason Foundation noted that “Since 2003, there have been 57 cigarette tax increases across the country. In 37 (68 percent) of those cases revenues failed to meet projections.” Moreover, in some states, like New Jersey, revenue from cigarette taxes actually declined in real terms following tax increases being implemented.

Both possibilities concern opponents of the tax, who argue that Lynch is overlooking the advantage that New Hampshire has long held over nearby states with its lower cigarette taxes which have drawn in out of state shoppers from Maine, Vermont, and most notably Massachusetts for years, helping fill New Hampshire’s coffers in the process. Were Lynch’s proposal implemented, New Hampshire’s cigarette tax would be brought within just pennies of Maine’s; meanwhile the gap between what the Granite State levies and what Massachusetts—famous for its high taxes—does would be reduced, also. The prospect of reduced sales has had convenience and some retail store owners in a huff. Not only do they worry about reduced cigarette sales to those traveling in from neighboring states, industry representatives say that additional revenue, garnered from gas and other “collateral” product sales, could slide.

Separately, experts say revenue would likely decline as more smokers look to quit to save money—a trend that could be exacerbated given the ongoing shaky state of the overall economy, and the fact that cigarette taxes hit the poor especially hard, thus ensuring that any increase jacks up the incentive to quit. According to the conservative group Americans for Tax Reform, one in four smokers lives below the poverty line; critics of Lynch’s proposal say it’s tough to imagine poor Granite Staters footing a $12 million bill when a significant proportion of them who attempt to quit smoking are likely to succeed.

For now, however, Lynch’s proposal seems to be on ice– the House Finance Committee gave it the thumbs down earlier this month—though observers are watching closely to determine whether it is really dead, or merely lying dormant.

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