Tobacco tax reduction still the right answer
A recent editorial by the Portsmouth Herald suggests that the state should continue forward with a policy of near annual tobacco tax increases. The liberal editorial page of that paper suggested that the reduction in the tax is “costing the state revenue,” proposing instead that the state spend more money to further grow government by increasing the tax.The editorial misses the bigger picture. According to the state’s most recent revenue report, all of the so-called “sin” tax revenue items have failed to meet projections. Moreover, on a percentage basis, the amount that the tobacco tax has missed targets (-6.9 percent) for the year falls well behind other sin tax revenue decreases, such as lottery sales (-10.4 percent) and charitable gaming (-9.1 percent). Even liquor and the beer taxes, which are down 3.9 percent and 1.6 percent respectively, have failed to meet expectations.Oddly, the Herald editorial doesn’t call for the reinstitution of the lottery winnings tax to help offset the loss of revenue for lottery sales. Under their logic, that tax reduction is “costing the state revenue,” even though rational minds realized that the gambling tax, as with the numerous tobacco tax increases over the last four years, were hurting, not helping, the economy.The truth of the matter is not that tobacco tax revenues are suffering because of the rollback of the last increase; rather our residents are cutting back and simply not spending as much money on these sin tax items, across the board.In tough economic times, people are just more likely to cut back on buying lottery tickets, playing bingo and purchasing cigarettes, beer and wine, and the state is dealing with the impact of this behavioral change.One of the key arguments for reducing the tobacco tax was to make sure that New Hampshire is competitive for all goods, across the board. When the Legislature included this savings to consumers, the clear message was to let everyone in the region know that the Granite State is the place to go for inexpensive goods.This month’s revenue report shows this advantage playing out. During budget discussions, proponents of the tobacco tax reduction said that passing it would help to increase other revenue sources, as people who cross the border to buy cigarettes will also buy other goods.That’s why it’s not surprising to see meals and room tax revenues beating projections (+2.2 percent) and most importantly, business tax revenues are way ahead of estimates (+9.7 percent), the strongest sign of an economy strengthening because of recent tax decreases and state regulatory reforms.Finally, it is disappointing, but not unexpected, to see Governor Lynch, a low-profile, but persistent tax-and-spender over the years, criticizing the tobacco tax reduction. While he gladly signed four tobacco tax increases in the past six years, he opposed the first reduction that would make New Hampshire more competitive. Oddly, in the governor’s budget projections, he suggested that tobacco revenue would increase this year and next, even though cigarette sales have dropped by over 21 percent the past five years as fewer people smoke. Had the Legislature accepted his figures, even without reducing the tax, we would have had a revenue hole that would have dwarfed the current gap.Four increases in six years made tobacco taxes unreasonable, but with the latest decrease, the economy is beginning to grow. Can’t the Big Government proponents just wait until this progress is established before they renew their persistent cry to tax and spend further?N.H. Rep. Ken Weyler, R-Kingston, is chair of the House Finance Committee.