Louisiana HB 889 is scheduled to be heard in the House Ways and Means Committee as early as tomorrow.
HB 889 would increase tax on cigars and smokeless tobacco by 50%. Additionally, it would increase the state cigarette tax by 50-cents per pack, a 138% tax increase! Increasing taxes on a source of declining revenue does not help raise funds for a state. The state will eventually need to increase taxes in the future to compensate for lost revenue. These tobacco tax hikes found in HB 889 would be levied on top of President Obama’s recent 61-cents per pack federal cigarette tax increase.
There are some unintended consequences of the proposed legislation. For example, a recent study estimated that if the cigarette tax increased by 50 cents, almost 20% of cigarettes used in Louisiana would be smuggled compared to the 6% smuggled currently. New York provides another example of this effect. A report compiled by the New York Association of Convenience Stores estimates that 53 percent of New Yorkers are buying cigarettes through the Internet, Native American reservations, nearby states, bootleggers, and through other outlets in and effort to avoid the increased tax burden since New York doubled its cigarette tax rate nearly a year ago.
Other states such as California, New Jersey, Florida, and Pennsylvania are all experiencing similar revenue reductions because of smuggling. One thing is clear – Louisiana lawmakers hoping to fill government coffers and fund new spending programs with a cigarette tax increase will end up sorely disappointed. Non-smokers should beware too. When cigarette tax revenue falls short of projections, as it most certainly will, all Pelican State taxpayers and employers will find themselves in the cross hairs.
Fortunately for taxpayers, Governor Bobby Jindal has promised to veto any cigarette tax increases that are put on his desk.