Today Americans for Tax Reform sent a letter Gov. Robert Bentley in opposition to two proposals to raise the cigarette tax in Alabama. HB27 filed by Rep. Patricia Todd would increase the cigarette tax by 32.5 cents per pack, costing tax payers an estimated $75 million each year. HB9 filed by Rep. Joe Hubbard would increase the cigarette tax by $1 per pack, costing taxpayers $230 million per year. Both proposals are violations of the Taxpayer Protection Pledge, a commitment Gov. Bentley made to Alabama taxpayers. As a pledge signer, we urge Gov. Bentley to honor his commitment to protect taxpayers in Alabama by opposing and vetoing all efforts to increase cigarette taxes. To read the entire letter, see below. For a PDF version, click here.

February 21, 2012

Dear Gov. Bentley

I write today to urge you to loudly oppose and veto all efforts to increase cigarette taxes in Alabama. Any increase in the cigarette tax is a bad idea, including the two specific bills filed by Rep. Patricia Todd and Rep. Joe Hubbard. Rep. Patricia Todd’s bill (HB27) would increase the cigarette tax by 32.5 cents per pack, costing tax payers an estimated $75 million each year. Rep. Joe Hubbard’s bill (HB9) would increase the cigarette tax by $1 per pack, costing taxpayers an estimated $230 million each year. I urge you to honor the commitment you made do your constituents when you signed the Taxpayer Protection Pledge, as these misguided proposals include lifestyle tax increases that will adversely impact the state’s economy, hurt small businesses and, frankly, serve as an unnecessary annoyance to Alabama residents.

Excise taxes have repeatedly been proven ineffective and bad policy that kills jobs and drives business across state lines. Jobs are at a premium amid this tepid economic recovery, yet both of these proposed tax increases are sure to reduce the job-creating capacity of small business owners across the state by forcing commerce across state lines. It should be noted that taxes on cigarettes in neighboring Georgia, Tennessee, and Mississippi are considerably lower than the proposed rate. You should look to South Carolina, Washington, D.C., and Chicago’s recent experiences with cigarette excise tax increases. These cautionary tales demonstrate that consumers are not deterred by a short drive if onerous lifestyle taxes are lower in a nearby state.

South Carolina added $.57 to each pack of cigarettes in July 2010. Despite the rate increase, records show a decline in cigarette tax revenue in South Carolina since that time, while neighboring states saw growth. Neighboring Georgia saw a net increase in cigarette sales of nearly 1.3 million packs in the six months after South Carolina raised its excise tax rate. Washington, D.C. raised its cigarette tax by $.50 in 2009 only to see an 11 percent net decline in cigarette tax revenue as consumers flocked to neighboring states with a low tax rate on cigarettes like Virginia. When Cook County, which encompasses the city of Chicago, increased its cigarette tax by $1 in 2006, Chicagoans flocked to neighboring Indiana to make their purchases. Following that tax hike, The Huffington Post reported a team of University of Illinois-Chicago researchers collected a sample of discarded cigarette packs. According to their study, 75 percent of the discarded packs came from outside Cook County. Alabama, given its geography, can expect similarly dubious results if lawmakers in Montgomery elect to raise cigarette taxes.

Rep. Patricia Todd and Rep. Joe Hubbard will try to sell this tax hike under the auspices of a cigarette use mitigation initiative. In reality, these bills are nothing more than shameless cash grabs that put off necessary spending reforms. I know it irritates some lawmakers when ATR says that the government has a spending problem and not a revenue problem, but that statement is supported by the facts. From 1999 to 2009, the Alabama budget grew by 27 percent. If spending was limited to the growth in population and inflation during that period, the Alabama government would have spent $28.7 billion less. Please look to ATR as a resource on this issue. If you have any questions, please contact ATR’s Josh Culling at 202-785-0266 or jculling@atr.org.

Onward,
Grover G. Norquist
CC: Members of the Alabama Legislature