Three's Company: NJ, NH and RI Weigh Cigarette Tax CUTS

As countless states across the country face budget shortfalls prompting calls for tax increases to ward off deep spending cuts, legislators in three states are taking a novel approach. In New Jersey, New Hampshire and Rhode Island, Capitol Confidential has learned that bills have been filed to reduce, not raise, cigarette taxes.

In New Jersey, where a previous increase in the state’s cigarette tax ultimately resulted in a loss of revenue as against the pre-hike figure, the proposal is to cut the state’s cigarette tax by 30 cents, from $2.70 per pack to $2.40 per pack.

In New Hampshire, several Republican legislators in the House want to take 10 cents off the tax applied to each pack of cigarettes, and cut the tax applicable to other tobacco products from 65 percent to 48 percent of the wholesale price.

And in Rhode Island, a House bill aims to cut cigarette taxes by a full $1 per pack.

The approach favored by the legislators behind the bills stands in stark contrast to that favored by some of their colleagues: In a full nine states to-date, bills to increase cigarette taxes have been filed. Anti-tax advocates remain wary of proposals to hike cigarette taxes in states including Illinois, Massachusetts, and even more conservative Idaho and Georgia.

Backers of the tax-cutting bills however continue to make their case that cigarette tax hikes operate like tax cuts– when taxes go up, revenue decreases, because smokers cut back, buy smuggled cigarettes illegally, or cross state lines to purchase cigarettes in cheaper jurisdictions. On the flip side, they say cutting cigarette taxes will bring in more revenue.

In New Hampshire’s case, a study conducted by Southern New Hampshire University professors Gregory Randolph and Michael Tasto, together with William Keip of Keip Government Solutions, showed that a 10 cent cut such as that proposed by legislators would bring in an additional $12.8 million. By contrast, the authors of the study conclude that a 10 cent increase in the tax would result in a reduction of state revenue to the tune of $10.8 million.

Those numbers likely do not account for the possibility that neighboring Massachusetts could increase its cigarette tax, another move potentially on the cards this year. Were that to happen, experts say the amount New Hampshire could gain by cutting its tax might be even higher.

The New Hampshire bill is said to have decent prospects, given strong support among retailers and Tea Party groups.