Our experience at the National Association of Tobacco Outlets is that cigarette tax increases generate far less revenue than their proponents predict. Moreover, the tax hike robs retailers, many of them small mom-and-pop stores, of tens of thousands of dollars in lost sales. Unfortunately, lost sales often lead to lost jobs.
Of the 19 states that passed a tobacco tax increase between July 2006 and July 2009, 14 fell short of the estimated revenue increase, and 11 of those missed projections by at least 19 percent. In fact, the state that fell furthest short was neighboring Tennessee, which missed the mark by almost 34 percent. Also, more than 20 states this year have introduced bills to raise cigarette and tobacco taxes, but not a single legislature has passed an increase.
The explanation for the failure of states to collect the amount of projected revenue after a cigarette or tobacco tax increase is simple and logical. When taxes go up, more smokers save money by ordering cigarettes and tobacco products online, switching to a less-expensive brand, or traveling to neighboring states with lower tax rates to buy tobacco products.
While some proponents argue that higher taxes encourage smokers to quit, the truth is that most smokers do not. When Florida increased its tax by $1 per pack in 2009, retailers in north Florida saw an average 24 percent decline in cigarette sales (some suffered a 50 percent decline), while retailers in southern Alabama and Georgia saw their sales increase by 4 percent and 19 percent, respectively. This clearly demonstrates that smokers are more than willing to cross borders to buy cigarettes and other items. In fact, a tax increase will cancel out any competitive advantage Alabama retailers now have, because Florida smokers will lose any incentive to come here.
If you are a non-smoker, you may wonder why you should care about this issue. The reason is this: Your state government is unwisely counting on a declining revenue source to make up huge budget deficits and Bentley is right in opposing such tax increases. Cigarette sales are already declining each year. When a cigarette tax increase doesn’t raise as much revenue as projected, it’s only a matter of time before they raise taxes on other goods and services.
Thomas A. Briant is executive director of the National Association of Tobacco Outlets in Minneapolis, Minn.