Using tobacco tax increases to fund health care for low-income children is a bad idea. As the taxes imposed on tobacco products increase, revenues are likely to fall - requiring increases in other taxes. In addition, small businesses and their employees are likely to suffer, and the impact on public health is likely to be negligible, or even negative.Mississippi was smart not to tie the tobacco tax to health care. But the cigarette tax was sold to off-set another tax, the new car sales tax, which is used to off-set the car tag tax that is too high for people. Legislators incrased taxes to off-set low tax revenues directed at hiding the pain of another tax that is too high.
Mississippi Residents: Help Stop a Tax Increase in Your State!
The Mississippi State Legislature is considering a proposal to raise the state cigarette excise tax by 177 percent to 68 cents per pack.
While cigarette tax increases have proven politically popular across the country, time and again history has shown that raising excise taxes does not produce projected revenue. Of the 57 excise tax hikes that states implemented between 2003 and 2007, only 16 met or exceeded revenue targets. As just one example, when New Jersey raised its cigarette tax in 2006, instead of gaining a projected $30 million in revenue, the state lost more than $22 million.
Mississippi’s proposed tax increase would make your cigarette tax rate higher than those of all four bordering states, driving smokers to purchase their cigarettes across state lines, or through untaxed or lower-tax venues, such as Native American territories and the Internet.
When the expected tobacco tax revenue fails to materialize, the politicians in Jackson will end up increasing yet more of your taxes to make up the shortfall!
In addition, excise taxes are regressive, disproportionately impacting the poor and those living on fixed incomes, and the Congressional Budget Office has said that cigarette excise taxes are the most regressive of all. With millions of Mississippians struggling to make ends meet during the economic recession, no taxpayer -- particularly not those most disadvantaged -- should be forced to hand over more of his or her hard-earned money to the government.
Please tell Governor Barbour, who pledged not to increase taxes, and your state senator and representative to forego raising taxes and instead do what households across the country are doing: Cut wasteful and non-essential spending to fund vital priorities!
On behalf of the taxpayers and small business owners of Mississippi, we urge you to veto the proposed 50-cent-per-pack increase in the state cigarette tax. This proposal is the exact opposite of what Mississippi needs in the midst of a painful recession. The cigarette tax is among the most regressive of all levies, and increasing it in this economic climate would hammer the state’s poor. It would also leave Mississippi with a higher per-pack rate than all but one of its neighbors. Your veto of this extortionate proposal would send a clear pro-taxpayer message to the Legislature.
A tax hike on cigarettes is bad economic policy in general, but this 50-cent increase will have especially negative consequences for Mississippi. Currently, the state enjoys a significant tax advantage over its neighbors, whose cigarette tax burdens are at least twice as heavy as that of the Magnolia State. This legislation will give Mississippi a higher rate than every border state other than Arkansas, crippling retailers as consumers cross state lines for lower prices. That spells trouble for an already sluggish economy.
Small business owners won’t be the only ones adversely impacted by this recessionary tax increase. It will be felt disproportionately by Mississippi’s poor families, as those earning less than the state’s median income are more likely to smoke. Taxes also consume a higher percentage of their income. With a federal cigarette tax increase having recently taken effect, the legislation headed to your desk constitutes a double-whammy for Mississippi’s low-income families. Furthermore, as the combined federal-state cigarette levy climbs and consumption decreases, Mississippi will be fighting with Washington over a dwindling pot of revenues. That’s why policymakers should focus on government spending restraint to keep the state’s fiscal condition healthy over the long term.
This tax hike will have negative implications that ripple through the entire economy. Now is not the time to raise any taxes, especially the excise on cigarettes. Mississippi needs to put itself in a position to attract business, not repel it. For these and the other reasons we have outlined, taxpayers are counting on you to protect them from the Legislature’s latest tax scheme.
"Significant segments of the non-smoking population go along with efforts to raise tobacco excise taxes because these taxpayers believe they can avoid the resulting pinch by simply not buying cigarettes -- a classic case of the 'tax thee, but not me' mentality," said NTU Director of Government Affairs Kristina Rasmussen, who authored the study. "As the data shows, however, the end result is often 'tax we' -- tobacco tax hikes have very real fiscal implications for non-smoking taxpayers."
Rasmussen's paper outlines five reasons that non-smokers should oppose high tobacco taxes:
1 - States with low cigarette taxes tend to have lower overall tax burdens. The per capita state and local tax burden in high-tobacco tax states is 8 percent above the national average, while the general tax bill for residents of low-tobacco tax states is 15 percent below the national average.
2 - Tobacco tax hikes rarely result in other cuts and are often paired with other tax increases or cuts worth less than the tobacco tax boost. "Most states that increase cigarette taxes don't refund the revenue elsewhere -- they spend it," the study notes.
3 - Tobacco tax increases don't prevent other hikes. Taxpayers face a seven out of 10 chance of seeing another net annual tax hike within two years of a tobacco tax hike.
4 - Cigarette tax hikes may encourage other increases because the extra revenue often is tied to specific spending schemes (such as health care or education) and tobacco use rates are falling -- along with potential tax collections. State governments will need to look elsewhere to fill the gap, and non- smokers could be on the hook.
5 - Tobacco taxes don't spur economic growth. States that adopted a tobacco tax hike in fiscal year 2003 saw an average growth rate in gross domestic product from 2005 to 2006 that was 0.6 percent lower than states that did not adopt a tax increase.
"Whether or not an individual uses tobacco, tax hikes hurt everyone by encouraging the growth of government," Rasmussen concluded. "While tobacco tax increases will assuredly come up as funding 'solutions' in the future, taxpayers -- smokers and non-smokers alike -- would be better served by extinguishing such a notion and instead focusing on cutting the size of government."
Mississippi legislators will return to the capitol on May 6 to vote on a proposal to raise the state cigarette tax by 50 cents. This is effectively a 616% tax increase.Lets hope conservatives do not join President Barack Obama in looking for political popularity with tax increases.
What's worse, this comes on the heels of a 156% federal ciggarette tax hike that went into effect on April 1st.
It is no secret that tobacco products are a dubious and declining source of revenue. Evidence from nearly every state that has unfairly targeted smokers for government revenue shows that very few tobacco tax hikes actually meet their revenue goals.
When New Jersey raised the cigarette tax 17.5 cents in 2007 they expected to bring in an additional $30 million. Not only did New Jersey not meet that target, the Garden State ended up with a net loss of $22 million in total tax revenue from tobacco. Maryland doubled the cigarette tax to $2 last year and cigarette sales dropped 25%, falling considerably short of projections.
To make matters worse, a cigarette tax hike’s effect would be felt predominantly by those least able to afford it. On average, smokers, whose median income is a little more than $36,000, make about 30 percent less than non-smokers. Furthermore, President Obama has already burdened smokers this year with the previously mentioned 156 percent hike in the federal excise tax on cigarettes. Piling more taxes on top of this is ill advised and adds insult to injury.
State spending priorities should be funded through existing resources and with as broad of a base as possible. Raising taxes on a declining revenue sources like tobacco to fund state spending programs is a recipe for higher taxes in years to come. As tax revenues decrease and spending commitments mount, legislators will be forced to raise other taxes in the coming years for additional revenue. Furthermore, when combined with the higher federal cigarette tax, the revenue from an increased state cigarette tax will decline even faster than projected.
ATR will continue to reach out to Mississippi lawmakers to urge their opposition to this odious proposal. Stay tuned for more updates on this important matter.
6.7 Tobacco TaxesAnd what did the man who holds the veto pen say recently?
6.7.1 Increase the Taxes on Cigarettes - The excise tax on cigarettes is lower in Mississippi than most other states in the nation. (see Table 7 on next page, Source: Federal Tax Administrators) A number of proposed changes were submitted to increase this tax. The Commission recommends an increase in the excise tax from 18 cents to 50 cents per pack, which would reflect the average of the four adjoining states.
6.7.2 Create a New Tax to Provide Equal Taxation for All Cigarette Manufacturers - Create a new tax on all tobacco manufacturers and give credit against this tax for payments made under the settlement agreement in the State’s tobacco lawsuit. The burden of this new tax applies to manufacturers not participating in the Mississippi settlement agreement.
6.7.3 Maintain All Increases in Tobacco Taxes for General Fund Use - Any revenue increase should not be tied to a specific use or other recommendation, but should be general fund revenue.
6.7.4 Tax Smokeless Tobacco Based on Weight - Implement a unit excise tax based on weight.
“The preliminary figures I shared with the legislative leadership today are based on a least-change model that would make the fewest and smallest cuts for departments and agencies allowed under the stimulus rules as we understand them. I cautioned the leadership that these calculations are still subject to approval by the federal government in certain areas; in addition, these figures assume restoration of the $90 million hospital tax and a tax increase of 42 cents per pack on cigarettes, making a total state tax of 60 cents per pack. I hope the Legislature will also enact tax increases on smokeless tobacco products and non-participating cigarette companies.”
One of President Barack Obama's campaign pledges on taxes went up in puffs of smoke Wednesday. The largest increase in tobacco taxes took effect despite Obama's promise not to raise taxes of any kind on families earning under $250,000 or individuals under $200,000. This is one tax that disproportionately affects the poor, who are more likely to smoke than the rich.
He repeatedly vowed "you will not see any of your taxes increase one single dime."
Now in office, Obama, who stopped smoking but has admitted he slips now and then, signed a law raising the tobacco tax nearly 62 cents on a pack of cigarettes, to $1.01. Other tobacco products saw similarly steep increases.
His detailed campaign plan stated that his proposed improvement in health insurance and health technology "is more than covered" by raising taxes on the wealthy alone. It was not based on raising the tobacco tax.
