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No Disenchantment on Failed Tax Policies Yet

by Brent Mead / /

NewMexico, fresh off of cigarette tax hikes totaling $1.46 per pack in thepast decade, now wants to take aim at smokeless tobacco and cigars. Calling thecurrent 25% tax rate on smokeless products a “loophole,” tax hike cheerleaderswant raise rates on all tobacco products to equal the new cigarette taxin the interest of fairness. I won't be breaking new ground with any of my arguments, but tobacco taxes still target the poor, still don't produce their advertised revenue, and they still hurt small businesses. 

NewMexico currently enjoys a slight competitive advantage vis-à-vis most of its neighbors. The25% tax rate on the first purchaser is lower than Colorado (40%), Oklahoma(60%), and Texas ($1.16 per ounce). The proposal to more than double the rateto 57% would make New Mexico more expensive than all but the Sooner State.Further complicating the situation are the multiple Native Americanreservations in the state, which have varying tax relationships with the state.What all this means is that small businesses, like convenience store owners,who rely on tobacco sales will be hit hard at the register as consumers buy less,or more likely just buy elsewhere.   

Speakingof Native Americans, they are the group most likely to use smokelesstobacco, and are also the poorest demographic in New Mexico. In addition to having higherthan average unemployment, many Native Americans can now also look forward to amassive tax hike that will hit them the hardest. I am not quite sure what isfair about adding another $350 in yearly taxes for a dipper who is already struggling to get by.

Finally,the past couple of years have not been kind to tobacco tax revenue estimates.The best example is the District of Columbia, which actually saw a decrease incollections compared pre-tax levels when it passed a massive increase in 2009.More recently, despite strong revenue growth across-the-board, Kentucky saw its tobacco tax revenue fall by over 5% whenthe state had projected an increase of over 10%. Maine is seeing similar numbersas well.   

Governor Martinez announced her opposition to theproposal, so perhaps there is hope that the enchanting spell sin taxes holdover New Mexico’s lawmakers will be broken. In the meantime, NTU and others will continue to argue fora sane tax policy that doesn’t drive business out of state, and doesn’t targetthe poor.