New Hampshire Debates a Reduced Cigarette Tax
By THE ASSOCIATED PRESS
Published: March 19, 2011
CONCORD, N.H. (AP) — As some states look to tobacco tax increases to plug budget holes, a few are bucking the national trend and instead are considering dropping the rate to increase cigarette sales.
In New Hampshire, supporters argue that reducing the tax by a dime would help the state compete with Maine, Vermont and Massachusetts, while opponents say it would still lose millions of dollars even if sales improved.
New Hampshire’s House voted on Thursday to reduce the tax and sent the bill to the Senate, where its prospects are uncertain. New Jersey and Rhode Island have also considered reducing their taxes.
It is unusual for states to lower the tax, said Frank Chaloupka, an economics professor at the University of Illinois at Chicago. The sales increase is not enough to offset the drop in tax revenue, he said.
New Hampshire has raised its tax repeatedly since Gov. John Lynch, a Democrat, took office in 2006, increasing it to $1.78 from 52 cents a pack in 2005.
The bill passed by the House would cut the rate 10 cents to $1.68 a pack. The taxes are $2.51 in neighboring Massachusetts, $2 in Maine and $2.24 in Vermont.
Rhode Island’s bill would cut its tax by $1, to $2.46 a pack, compared with $3 in neighboring Connecticut. New Jersey last year considered reducing its tax by 30 cents, to $2.40 a pack, but has not followed through. Smokers in New York City pay the nation’s highest cigarette tax, a combined state and local rate of $5.85 a pack.
When states raise the tax, revenue goes up even though sales decline, Mr. Chaloupka said. Over time, tobacco tax revenue gradually drops after a tax increase as smoking declines, he said. To drive revenue back up, states have raised taxes again.
The only time tax revenues dropped after a state raised its tax was in 2006, when New Jersey raised it by 17.5 cents, he said — though the revenue decline was more likely because of adoption of a comprehensive smoke-free policy. New Jersey raised the tax by 12.5 cents in 2009 and revenue rose, he said.
Mr. Chaloupka said that any reduction in cigarette prices would add to Medicaid and other health care costs. The Campaign for Tobacco-Free Kids estimates that if the New Hampshire cut were enacted it would mean more than $21 million in long-term health costs.
The campaign also estimates a 10-cent drop per pack would result in 1,000 new young smokers in New Hampshire.
State Representative Susan Almy, a Lebanon Democrat and member of the House Ways and Means Committee, said the health impact was not taken into account in the committee when it promoted the tax cut.
Instead, lawmakers are looking at a study by the New Hampshire Grocers Association, which has consistently criticized the tax increases as hurting small businesses, particularly along New Hampshire’s state line.
The Grocers Association president, John Dumais, said its study showed that cutting the rate a dime would reduce the state’s tobacco tax revenue, but that would be offset by an increase in state taxes collected from people renting hotel rooms, eating in restaurants and buying alcohol, lottery tickets and gasoline.
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