The Price of Taxing Tobacco

Can reducing New Hampshire’s tobacco tax actually increase state revenues from tobacco taxes?

Assuming a big increase in sales due to the lower tax rate, that’s the idea behind a bill that’s getting its second public hearing today. House Bill 156 passed the House last month, and is now with the Senate Ways & Means Committee. But the bill’s fiscal note, prepared by the N.H. Dept. of Revenue Administration, predicts a different future.

Sponsored by the Chair of the House Finance Committee, Rep. Kenneth Weyler (R-Kingston), HB 156 would cut the Granite State’s tax on cigarettes by ten cents, from $1.78 to $1.68 per pack. The tax on other tobacco products would also drop, from 65 to 48 percent of the wholesale price.

Writing for the majority of the House Ways & Means Committee, where the bill was recommended 14-5, Rep. Patrick Abrami (R-Stratham) said reducing the tobacco tax would “re-establish New Hampshire’s competitiveness with Maine, Massachusetts and Vermont.”

Also factoring in more sales of non-tobacco products when people shop for cigarettes at New Hampshire stores, Abrami writes, “small convenience store owners, large grocers, and restaurants will have positive sales in relation to lowering the tax” due to increased cross-border traffic. State revenues through increased business taxes could receive a boost, supporters say.

But the fiscal note attached to the very same bill paints a different picture. The Dept. of Revenue Administration estimates that lowering the tobacco tax could cost New Hampshire between $7.7 million and $14.8 million in 2012. That’s part of the reason the committee’s minority opposed the bill.

In her minority report, Rep. Susan Almy (D-Lebanon) said, the “current tobacco tax rate is competitive with neighboring states and … it is unlikely a reduction of 10 cents per pack will result in increased sales sufficient to outweigh the lost revenue.”

Almy also questioned whether a decrease of 10 cents a pack would really lead to greater sales from out-of-state buyers, especially if manufacturers and retailers don’t pass the savings on to consumers.

Mostly along party lines, HB 156 passed the House overwhelmingly by a 236-93 vote.

The closest tobacco tax rate to New Hampshire is Maine, at $2 a pack. Vermont taxes $2.24 and Massachusetts taxes $2.51 per pack. Since 2005, New Hampshire has raised the per pack tax from 52 cents to the current $1.78. The tobacco tax is one the top five revenue generators for the state.

Gov. John Lynch does not support a decrease in the tobacco tax, and he’s joined by the New Hampshire chapter of the American Cancer Society and the Campaign for Tobacco Free Kids, which is concerned that a lower price for cigarettes could lead to increased youth smoking. According to the Campaign for Tobacco Free Kids, New Hampshire is slightly above the national average with 20.8 percent of high school students smoking.

If you smoke, would you buy more cigarettes if they were ten cents less per pack? If you’re a retailer, would you pass a tax savings on to customers? Are you concerned that it could cost the state, and individuals, more in increased health care costs if cigarette consumption increases? What questions do you want Senators to ask about lowering the tobacco tax rate?

Share your thoughts and questions in the comments box below. (Read the Comments Policy here.)

>> Tuesday, April 12, 1:00 p.m, Senate Ways and Means Committee public hearing on HB 156 and an economic forecast briefing (State House, Room 100).

This Daily Dispatch was written by Michael McCord, with contributions from Hilary Niles.

Posted by Hilary Niles on Apr 12 2011. Filed under business taxes, Commerce, Government, Health, Money, smoking/tobacco, state budget, taxes, tobacco & cigarettes, tobacco & cigarettes, Weekly Briefing. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry