Democrats thought they had something for a minute. After the GOP majority reduced the cigarette tax the revenue didn’t shoot right up the next day. It actually did not shoot up the first month either. Naturally this made knees jerk all over the party headquarters and the muttering began about how decreasing the tax forced us to reduce valuable government services. (Women, children, and public union employees hit hardest.)
The media permitted them their druthers, for good or ill, and it became a matter of public record that the NHDP had embarked on a nah-nah told you so PR campaign about taxing tobacco products.
Then tobacco revenues went up. They went up 1.8 Million ahead of plan last month. What was more important was that this increase ended what the NH House majority claims was a five year downward trend. 2011 minus five carry the tax deduction…well, since just about the time the democrat majority experiment began. (And hey, someone please call Rep Christine"Nostradamus" Hamm, D-Hopkinton, and rub it in her face.)
So why bring it up? One month, 1.8 million over plan, not that much really. I mention it because Big Government.com just posted a piece that references data from the CDC and other sources on the ongoing futility of using cigarette taxes as a source of state revenue. Smoking is still on the decrease, which is good. I count myself among the legions of former smokers, though cost was not then a factor. The number of cigarettes smoked per day is down, which is also good but reductive from a revenue perspective. And a majority of cigarette tax increases never really produce the expected revenue. This is partly due to the affects of taxation, and to some degree due (apparently) to smuggling. High taxation and regulation lead to illegal behavior–which adds costs to deal with the "crime " created by them–so feel free to postulate the downsides yourselves; but raising taxes is no guarantee of more revenue, so I think it is time for another discussion about tobacco taxes, and why we need a long term plan to cut them until they are not taxed at all.
I have repeatedly called for a more ‘cig’-nificant decrease in the per pack tax as a way to reduce the regressive nature of a tax that unduly burdens lower income residents. I think the lower rate secures our current revenue expectations by attracting sales from neighboring states that have higher tobacco taxes; and as use continues to decline we could still see stable or even increased traffic from nearby states. (When Lynch last increased our tax the opposite happened.) It also produces secondary sales and additional revenues by driving new traffic to local retailers. But I think we need to be more aggressive. We need to implement a plan to reduce cigarette taxes as far as we can, while eliminating any budgetary dependence upon them altogether. This is not a reliable tax so I am asking the state of New Hampshire to kick the cigarette tax habit.
Any phase out should coincide with a change to how these revenues are allocated. I believe that some cigarette taxes go to SCHIP to provide insurance for people who already have insurance. These kind of mandates have to be stopped, not just because they make no sense but because they are being funded by a tax on a product the State itself does not want around anyway.
Whatever the current allocations, begin by placing a fixed percentage of all tobacco revenue into a rainy day fund instead of to any budgetary line item or department (if this does not already happen), then increase that percentage on a schedule. It could be years, but we should insist on it until the state has little to no reliance on unreliable tax dollars whose future is dim.
Putting them into an uncommitted fund will also allow us to reduce the per pack tax more aggressively. That should, more than likely, continue to produce an increase in tobacco revenues, despite the thinking of Democrats like Christine Hamm of Hopkinton, and this uncommitted revenue could provide emergency tax dollars for unanticipated one-time, emergency expenses, storm clean-up, yellow rain coats and little boots for the governor, things like that. If (or when) the revenue declines as the number of smokers decreases further, as predicted, it will have no impact on the actual budget and can decline into eventual obscurity along with the habit.
The left will complain about any reduction even if it is a regressive tax. But if the tax is doomed to begin with, and the left seems committed to ending smoking and as such the tax, one way or another, why wait and struggle to replace it later? If we plan ahead we can reap a windfall in the interim and then suffer no consequences when the tax becomes too insignificant to use for much of anything.
In the interim the reduced tax will result in more traffic to border and retail stores, and increased sales per transaction, as people take advantage of savings on cigarettes to buy other tax-free items while already here. These sales will include things like gasoline which also produce tax revenue for the state. Increased sales adds jobs and a cascade of other long term benefits to New Hampshire.
And yes, I advocate reducing the gasoline tax as well. It is regressive and a greater burden to lower and middle income residents, and it tends to go down when you need it most, like during a recession. These types of taxes, based on consumption, are all unreliable. So if and when the lower cigarette tax is no longer the draw it once was, we should plan to do the same thing with motor fuel taxes.
Talk about building on the New Hampshire advantage.