Three states are considering taking the virtually unheard of measure of cutting taxes on Classic cigarettes in a bid to boost sales and woo smokers from neighbouring states. Across the country there have been 100 price increases on cigarettes over the past decade as states have repeatedly upped the tax to help ease budget deficits. But New Hampshire, New Jersey and Rhode Island are talking about reversing the trend.
New Hampshire’s House voted Thursday to reduce the tax by ten cents and sent the bill to the Senate. The state raised its tax repeatedly since Democratic Gov. John Lynch took office in 2006, increasing it from 52 cents per pack in 2005 to $1.78 currently.
Thursday’s bill would cut that to $1.68 per pack. The taxes are $2.51 in nearby Massachusetts, $2 in Maine and $2.24 in Vermont.
That means that a $7.13 pack of Marlboro cigarettes in Massachusetts would sell for around a dollar less in New Hampshire.
Rhode Island’s bill would cut its tax by $1 to $2.46 per pack compared with $3 in neighbouring Connecticut.
New Jersey last year considered reducing its tax by 30 cents to $2.40 per pack, but has yet to follow up on it. The state may be considering cashing in on the high price of cigarettes in nearby New York.
A packet that can be bought for $7.50 in NJ can cost up to $14 in New York City.
Frank Chaloupka, an economics professor at the University of Illinois at Chicago, said it’s very unusual for states to lower the tax because the tobacco sales increase isn’t enough to offset the drop in tax revenue.
He added that any reduction in cigarette prices would add to Medicaid and other health care costs. The Campaign for Tobacco-Free Kids estimates that if New Hampshire cuts the tax it would mean more than $21 million in long-term health costs.
New Hampshire State Rep. Susan Almy said the health impact was not taken into account in the committee when it promoted the tax cut.
Lawmakers were more focused on 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.
Grocers Association President John Dumais said the study shows that cutting the rate by ten cents would cost the state tobacco tax revenues but would be offset by an increase in taxes collected from people renting hotel rooms, eating in restaurants, and buying alcohol, lottery tickets and gasoline.
The result would be no loss of revenue to the state but an incentive for tourists to visit and shop, he said.
He said: ‘People coming from out of state are going to have an empty gas tank. They’re going to be hungry. They’re going to be tired. It’s going to help every business.’