With the state facing a large budget deficit that threatens to undermine state services and shift millions in costs to local government, cutting the state tax on cigarettes is simply a bad idea.
As we reported last week, the House endorsed cutting the tax, 236-93, and the chief budget writer in the state Senate predicted they would likely go along with the idea.
Cutting the tobacco tax by 10 cents per pack is likely to cause a significant drop in state revenue, despite claims to the contrary. New Hampshire’s tax, even at its current level, is well below neighboring states and still gives New Hampshire a competitive advantage.
Supporters of cutting the cigarette tax argue that the current levy is decreasing sales, but experience shows that every time the state has increased the tax, revenue has gone up.
In this case, past experience is a good indicator of future outcomes. As Rep. Christine Hamm, D-Hopkinton, pointed out during the floor debate, every time the state has raised the tax, it has brought in more revenue, sometimes much more than forecast.
Cutting the tax could cost the state as much as $9 million in lost revenue next year, compounding an already difficult situation.
Frank Chaloupka, an economics professor at the University of Illinois at Chicago, to the Associated Press that it is unusual for states to lower the tax because experience has shown that the sales increase is not enough to offset the drop in tax revenue.
When states raise the tax, revenue goes up even though sales decline, Chaloupka told the AP.
Gov. John Lynch has opposed raising business taxes, but he’s consistently championed increasing a cigarette tax that was 80 cents per pack when he took office. At $1.78 per pack, the New Hampshire levy is still well below the $2.51 in Massachusetts, $2 in Maine and $2.24 in Vermont. All three states also have sales taxes that are added to the cost of cigarettes bought there.
It’s hard to imagine that current pricing is driving cigarette smokers away from New Hampshire.
Still, experts hired by the New Hampshire Grocers Association argue cutting the tax would raise up to $13 million in additional tax revenue for the state. Considering the source of the study, those numbers have to be taken with a grain of salt.
Grocers along the New Hampshire border make a lot of money selling cigarettes to out-of-state residents, and a lower price would increase their sales, which is good for them. The grocers make more money when they sell more cigarettes, even if the state makes less money on the taxes, so it’s no surprise the grocers association is lobbying hard on this one.
Rep. Stephen Stepanek, R-Amherst, who chairs the House Ways and Means Committee, calls the tax cut proposal “a pro-business, pro-growth, pro-jobs bill,” when in fact it is a revenue drain that will only force more budget cuts at a time when $500 million in state services are already on the chopping block.
New Hampshire already has some of the highest health care costs in the nation, and making cigarettes cheaper is certainly not going to help on that front.
The current cigarette tax in New Hampshire has provided a reliable revenue source, while ensuring that the state retains its competitive position in New England. With draconian budget cuts on the table, now is not the time to make a bad situation even worse.