Right off the bat, thanks to Matt at Red Hampshire for reminding me about Ken Wyler’s bill to cut the cigarette tax by $0.10 cents per pack. (HB 156) I’ve been queuing up a post on this having written about it often and what better time than now to unload it.
First the basics. Wyler thinks cutting the tax by a buck a carton will actually increase revenue by attracting more out of state traffic. Ken is correct. A larger cut would be better, but I guess we can crawl before we walk. And with that in mind, lets review why it will raise more revenue. And I’m not even going to have to go back very far for a decent flashback.
April 2010 during what was probably another of many democrat efforts to raise the tax on cigarette’s or tobacco, I suggested they instead cut the tax by $1.00/pack and I had plenty of good reasons; raising more tax revenue was just one of them.
The larger the cut the farther people would drive to benefit from it. Consumers making the trip would spend that savings and more on lottery tickets, beer, liquor, soda, and a host of other items whose price advantage are much more attractive once they are already over the border.
That translates into increased visits for retailers, a larger average purchase per visit, and secondary and tertiary purchases for gas and other goods to the surrounding community. Increased retail traffic has the fortunate side effect of creating an environment that attracts investment in the form of more retailers seeking to profit from that traffic.
This creates more choices for consumers, price competition, competition for the available wage pool, and wage growth to hire and maintain staff. This attracts more residents, which leads to more purchases in a larger range of retail and secondary markets nearby, more profits all around, and more revenue for the state, all from lowering taxes.
Cigarettes are not just about the tax on cigarettes. They create retail traffic with broad commercial potential given human nature and New Hampshire’s other tax and price advantages. But all democrats could see was the tax. So the result, predictable as always, was less revenue not more.
So by August of 2010, we were already seeing evidence of negative effects of the democrats race to the bottom strategy on cigarette tax increases…
In this mornings Nashua Telegraph, in one of those "not worth a whole article" News digest blurbs , we learn that the good people of Maine are smoking more and buying their cigarettes in New Hampshire less. The theory goes that the increase in the New Hampshire cigarette tax has reduced the price benefit to the point where it is no longer worth making a special trip. There’s no way to know exactly how much it will cost New Hampshire but according to the blurb Maine sales are up 20%. (TWENTY PERCENT!)
You don’t even have to be so-smart-you-are-stupid Paul Krugman to figure out what happened. It no longer became equitable to make the trip to buy the smokes in the Granite State, or much of anything else while you were here. So by raising the tax we lost sales and revenue on cigarettes, as well as gas, consumables, and other retail activity that can happen as a result of just being here already.
What strikes some of you as odd, I suppose, is why despite plenty of evidence that this is always the case, democrats continue to do it? Why do they raise taxes knowing they will lose money?
I’ll leave that hanging out there even though I could write an nice essay to explain it.
On a related note, it appears that our neighbors are looking to raise their cigarette taxes as we plan to lower ours. That will only benefit us more by expanding our advantage–and yes i still think we should cut the tax further despite that growing gap.
Let me end with these two things.
First, my closing argument from the August 2010 post..
..if we cut taxes the entire New Hampshire border would look more and more like the western side of the Berlin Wall before they tore it down; a bright shiny inviting slice of freedom visible from the other side–only this one from the oppression of poorly run governments that overtax everything only to tax it more when it fails to raise the funds promised.
And second…
Are we considering a reduction in the gas tax as well, and if not why? Smokers are not the only ones who come to New Hampshire to save money. If we drop it by ten cents per gallon guess what happens…we take in more gas tax revenue from increased transactions, and get improve the odds of additional sales of other items.
It’s a winner, and the democrats will hate it. What more could you ask for?
