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Dec
27

No Way - REALLY?????

Way back when - during the Pawlenty Administration - there were discussions about (that eventually led to) raising the cigarette tax.  It was a stand that lost Governor Pawlenty a lot of support both during his administration and in his Presidential run.  Oh he tried to hide it - couching it in Clintonesque double speak about it being a "health impact fee" but as many of us said at the time....if it walks like a duck and it quacks like a duck...

Governor Dayton is talked about raising the tax over the summer, but thankfully the Legislature had learned the lesson that Governor's Pawlenty AND Dayton have not - that increasing excise taxes do not automatically mean an increase in the state coffers - in many times it means the exact opposite.  Don't believe me?  Politifact even backs it up with stats....

The question for us: Do excise tax increases, as Norquist wrote, "drive commerce across state lines"?

Excise taxes are placed on items such as cigarettes and alcohol. Most excise taxes are on cigarettes. Georgia, like most Southern states, has among the lowest excise taxes on cigarettes (37 cents a pack) in the nation. One news report earlier this said state Senate leaders are considering raising the cigarette tax by $1 a pack.

The Americans for Tax Reform staff argued its case that Norquist is right, pointing to the results of excise tax increases in three places, Chicago, Washington, D.C., and South Carolina. Here’s a closer look:

Chicago

ATR told us that Chicagoans flocked to neighboring Indiana when Cook County, which encompasses the Windy City, raised its cigarette tax by $1 in 2006. After the 2006 changes in Cook County, Chicagoans paid among the highest prices for cigarettes in the country. A team of University of Illinois-Chicago researchers found in a sample survey of discarded cigarette packs that 75 percent of them came from outside Cook County, The Huffington Post reported. The taxes on a pack of cigarettes in Chicago in 2007 was $4.05. The taxes were $1.37 outside city limits.

Washington, D.C.

ATR says Washington saw an 11 percent net decline in cigarette tax revenue after it raised the cigarette tax by 50 cents, to $2.50 a pack in 2009. Cigarette taxes in the nation’s capital were already higher than most states before 2009. In Virginia, the taxes for a pack of smokes is 30 cents, nearly the lowest in the nation. Missouri has the lowest cigarette taxes, 17 cents a pack, according to the Campaign for Tobacco-free Kids. City officials still expected to bank $30 million from the increase, although it was less than their initial projection of about $45 million.

South Carolina

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 in July 2010, ATR says. Cigarette tax revenue did decline slightly in South Carolina in the first 12 months since its increase, records show. South Carolina previously had the lowest cigarette tax in the nation, at 7 cents a pack. It’s now 57 cents a pack. Many smokers in the Palmetto State were not happy with the changes.

Now they did quote others that put a bit of a damper on the above...

Matthew Farrelly, whose research on cigarette excise taxes has been used by others, said some people will travel across state lines to buy cigarettes once excise taxes are raised. Other smokers will buy by the carton or choose a lesser brand to save money, he said. Farrelly contends it’s "bogus" for anyone to say large numbers of smokers will rush to another state to buy cigarettes once an increase takes effect because few Americans live near a border. He also noted the states that raise their excise taxes eventually make a profit.

"On net, increases in taxes on cigarettes lead to revenue all the time," said Farrelly, senior director, RTI International Public Healthy Policy Research Program, headquartered near Raleigh, N.C.

But we all know people who drive to other states to get cheaper alcohol and cigarettes...people who are willing - even at $3.00 to $4.00 a gallon for gas - to drive up to 2 hours to get what they can not get at home.  Those are tax revenues that are lost to the state the people come from (hello Utah liquor laws).

Politifact's conclusion...

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.

And as with every political claim it IS all about context.  Something that politicians rarely take into account but should.  If they want to do right by the citizens of their state.

Written by LL.

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