In the next few weeks, the Idaho Revenue and Tax Committee may vote on a bill to raise the state's cigarette tax $1.25 per pack. That would take Idaho from the lowest tax among its neighbors to the second-highest.

As we have argued before, high excise taxes drive commerce across state lines as consumers seek lower prices. That negatively impacts small businesses in high-tax states, especially those close to the border with lower-tax states. Recently in South Carolina, for example, lawmakers imposed a 50 cent per pack increase, bringing the state's tax rate 20 cents higher than neighboring Georgia. In the next 6 months, Georgia retailers within 25 miles of the border saw a 5.1 percent increase in cigarette sales, to the detriment of South Carolina's border retailers.

The same scenario has borne itself out recently in Washington, D.C. and Chicago. Should Idaho go the same route, retailers will be forced to charge more than $12 per carton more than in Wyoming, or over $10 more than in Nevada.

We took this argument recently to Georgia, where lawmakers are said to be mulling a cigarette tax hike that will wipe out the state's tax advantage over South Carolina, Tennessee and Alabama. Non-partisan fact checker PolitiFact analyzed our position and ultimately deemed it "Mostly True":

The question for us: Do excise tax increases, as Norquist wrote, "drive commerce across state lines"?
…
Our conclusion: Norquist has a good argument for his basic point, based on the research we’ve seen and people we’ve interviewed. The difference in taxes between some places, however, is so large ($2.20 a pack between Washington, D.C., and Virginia) that it adds some important context to this argument. With that additional bit of information, we rate Norquist’s claim as Mostly True.

Idaho currently projects a $77 million budget surplus. That combined with the tenuous economic recovery sets the stage for tax cuts, not job-killing tax increases. To see Grover's letter to the Idaho Legislature urging them to reject the cigarette tax hike, see below. For a PDF, click here.

If you're in Idaho, click here to take action and tell your lawmakers to vote NO on the tobacco tax hike.

30 January 2012

 

Idaho House

Idaho Senate

Dear Legislator,

I write in strong opposition to a proposed tobacco tax increase in Idaho. As we have seen in countless other states recently, targeted excise taxes drive commerce across state lines, hurting in-state small businesses and their employees. And with a projected budget surplus, this is certainly no time to raise taxes.

States compete for commerce and job growth. When government raises the cost of a particular good or service, consumers are free to purchase the product elsewhere. Currently, Idaho has a lower cigarette tax rate than any of its neighbors. If the state imposes a $1.25 per pack tax increase, only Washington will have a higher rate in the region. It is not difficult to envision a scenario in which a low-income smoker crosses the border to Wyoming to save over $12 on a carton of cigarettes.

In fact, this is exactly what we have seen in other states. In 2010, South Carolina instituted a 50 cent per pack cigarette tax increase, bringing its rate 20 cents higher than neighboring Georgia. In the following six months, Georgia retailers within 25 miles of the border saw a net increase in sales of 1.3 million packs – a 5.1 percent jump at the expense of South Carolina small businesses.

In 2006, Chicago, Illinois instituted a $1 per pack increase and the state actually saw a revenue decline, as an estimated 75 percent of smokers migrated to Indiana to purchase cigarettes. The same was true in Washington, D.C., which lost tobacco tax revenue in 2009 after the city raised its tax 50 cents per pack.

In Idaho, we are talking about an even larger tax increase than any of the above, meaning the incentive for consumers to cross state lines will be even stronger. Don’t take my word for it: Non-partisan fact checker PolitiFact recently examined ATR’s argument that higher tobacco taxes hurt retailers located near the border. They wrote:

The question for us: Do excise tax increases, as Norquist wrote, "drive commerce across state lines"?
…
Our conclusion: Norquist has a good argument for his basic point, based on the research we’ve seen and people we’ve interviewed. The difference in taxes between some places, however, is so large ($2.20 a pack between Washington, D.C., and Virginia) that it adds some important context to this argument. With that additional bit of information, we rate Norquist’s claim as Mostly True.

I urge you to avoid the folly of other states and protect Idaho small business by rejecting this harmful tax increase.

Onward,

Grover G. Norquist