Vermont Going in the Wrong Direction on Tobacco Taxation
For the most part, the constant upward pressure on cigarette taxes in the Northeast has subsided, as states have consistently failed to realize expected revenue gains. A number of states are even moving to cut these excise taxes to lure consumers that have begun to purchase contraband cigarettes or migrated to lower-tax jurisdictions. Credible proposals exist in New Hampshire, New Jersey and Rhode Island, while Maine Gov. Paul LePage campaigned on a promise to cut tobacco taxes.
But Vermont isn't getting the memo. A proposal to raise the cigarette tax by $1 per pack has passed out of the Senate Finance Committee. It would move Vermont from the 10th-highest cigarette tax in the nation to the 3rd-highest, at a time when New Hampshire seeks to cut its tax by 10 cents per pack. If the neighboring proposals are successful, the disparity between the two states will expand from $4.60 per carton to $15.60 per carton. States compete for commerce largely on the basis of price, and the Vermont Legislature seems keen on exacerbating its already-stark comparative disadvantage with New Hampshire.
This is obviously the wrong approach. Less than a week after we traveled to New Hampshire to testify in support of the state's proposed cigarette tax cut, ATR sent a letter in opposition to the Vermont tax hike. I'm sure New Hampshire's small business community wishes we hadn't.
To see ATR President Grover Norquist's letter to the Vermont Senate, see below.
19 April 2011
I write today to urge you to follow Gov. Shumlin’s lead in opposing the $1 cigarette tax increase included in H.436. With an existing cigarette tax of $2.24 per pack in the state of Vermont, the dramatic increase to $3.24 would have a significant negative impact on sales and state tax revenue.
Targeted excise taxes have proven to be unstable sources of revenue, and ultimately cause a reduction in tax receipts as consumption is discouraged by the higher cost. Washington D.C.’s 2009 cigarette tax hike ultimately ended up depriving the city of millions of dollars as tax revenue plunged below pre-increase levels. Vermont is already facing significant competition from neighboring states such as New Hampshire due to the other states’ friendlier environment for consumers and businesses. By increasing tax demands on this block of consumers, Vermont will exacerbate the problem by adding another incentive for consumers and businesses to look out of state.
In fact, the trend of perpetual tobacco tax increases in the region is reversing. Credible bills in New Hampshire, New Jersey and Rhode Island to reduce the cigarette tax are being considered. The current governor of Maine campaigned on a promise to cut the cigarette tax. Gone are the days of states in the Northeast competing for higher tobacco taxes; if Vermont increases the excise tax they will face an even more dramatic drop tax-paid sales within its borders.
And that means fewer jobs. Increasing the cigarette tax rate has a significant impact on local businesses such as convenience stores, as tobacco sales make up approximately one-third of their total sales nationally. Consumers will also be less likely to visit these stores to obtain cigarettes and stores thus will forego revenue from any additional items that may have been purchased during the visit.
Rather than making tough choices to resolve an overspending problem approaching $200 million by reducing the size of government, the legislature is looking to taxpayers to help prop up irresponsible spending habits and place an unfair burden on a targeted sector of consumers. While levying an additional tax on cigarettes is a politically easy “quick fix” to shore up state revenue, you must face the economic reality that it is ultimately not in the best interest of the state. We urge you to support a stronger, more prosperous Vermont by opposing all tax increases.
If you have any questions regarding ATR’s opposition to H.436, please contact ATR’s director of state affairs Patrick Gleason at email@example.com
CC: The Honorable Peter Shumlin