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Oppose a Burdensome Cigarette Tax Hike on the Poor; Reject House Bill 2973
An Open Letter to the West Virginia Legislature
February 23, 2011
On behalf of the National Taxpayers Union’s nearly 2,000 members in West Virginia, I urge you to reject House Bill 2973, which would raise the cigarette excise tax by $1 per pack and increase the tax on smokeless tobacco by a whopping 614 percent. Although proponents claim that higher tobacco taxes are good public policy, the reality is that such taxes disproportionately burden the poor, harm small retailers, and are unreliable sources of revenue.
Lower-income West Virginians are more likely to smoke, so they will disproportionately feel the impact of an increase in the state’s tobacco taxes. A 2007 study by the Heritage Foundation showed that more than one-fourth of people who smoke live below the federal poverty line, and another quarter of all smokers live within 100-200 percent of the poverty line. Raising the cigarette tax to $1.55 per pack would, for example, cost a West Virginian who smokes a pack a day an additional $365 in state taxes per year – a 182.5 percent increase in state taxes alone. This is a substantial additional expense for the poor and those on fixed incomes.
Small retailers will also suffer under these tax hikes. Tobacco items account for one-third of total purchases in convenience stores nationwide, according to the National Association of Convenience Stores. By one estimate, HB 2973 could cost the more than 2,500 tobacco product retailers in West Virginia $400 million a year in sales, as smokers seek out cheaper alternatives from neighboring states. Losses due to smuggling activity figure into that total as well.
Cigarette taxes are also unstable sources of revenue for the states as optimistic projections all too often give way to stagnant collections… or worse. West Virginia’s tax-paid cigarette sales increased only 0.4 percent over the last decade. New Jersey reported a $52 million shortfall in revenues after it raised its cigarette tax by 17.5 cents. Despite boosting its cigarette tax by 50 cents last year, 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. Other states, including Arkansas, Maryland, Mississippi, and Rhode Island, have also reported gaps in revenues following tobacco tax hikes.
It simply does not make sense to raise an unreliable tax that heavily burdens the poor and small retailers, particularly in this economy. Therefore, our members hope you will oppose HB 2973.
cc: Senate President Earl Ray Tomblin