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An Open Letter to the Alabama Ways and Means Committee: Oppose Misguided Tobacco Tax Hikes!

February 27, 2012

Dear Legislator:

On behalf of the National Taxpayers Union’s (NTU’s) 4,000 members in Alabama, I urge you to reject HB 27 and HB 9, which would raise Alabama’s cigarette tax by 32.5 cents and $1 per pack, respectively. Passage of punitive tax hikes will only increase burdens on hard-working citizens, harming the fragile economic recovery while failing to address the state’s overspending problems.

HB 27, sponsored by Representative Patricia Todd, would raise the state cigarette tax by 32.5 cents a pack, costing Alabamians $75 million per year. This bill would place the state’s cigarette tax well above that of neighboring Mississippi, Tennessee, and Georgia, encouraging cross-border sales that are common in many areas of the country. HB 9 is even more damaging for consumers, raising the tobacco tax by $1 per pack and imposing an additional $230 million burden on largely working- and middle-class families. This legislation would boost Alabama’s tax rate past every one of its neighbors, including Florida.

While both bills are being portrayed as necessary responses to Alabama’s $400 million overspending problem, the truth is that many tobacco tax hikes across the country have failed to produce the promised revenue. New Jersey reported a $52 million shortfall in tobacco tax revenues after it raised its cigarette tax by 17.5 cents. Subsequent to boosting its cigarette tax by 50 cents in 2009, the District of Columbia reported that it collected $15 million less than expected, and $7.6 million less than it collected prior to the tax hike. Even worse for taxpayers, a 2008 NTU study showed that 41 of 59 state tobacco tax increases from 2001-2006 were followed by more expansive tax hikes within two years, as states attempted to make up for tobacco revenue that never materialized.

Moreover, since moderate-income Americans are more likely to smoke, they will disproportionately feel the impact of an increase in the tobacco tax. If enacted, this proposal would cost a person who smokes a pack a day as much as $365 in additional taxes per year. Raising a tax that threatens to curtail commercial activity (thereby shrinking the revenue base) and strains many families’ budgets makes no economic sense.

Rather than increasing a regressive tax, we urge the Legislature to continue pursuing ways to trim wasteful spending. Doing so will spare Alabama’s consumers and businesses from considerable harm while avoiding additional burdens on struggling households. We look forward to working with you to enact common-sense reforms that do not include damaging tax hikes.

          Sincerely,

          Brent Mead
          State Government Affairs Manager