Statement of Lee Schalk Submitted to the Missouri Senate Ways and Means Committee Regarding Senate Bill 220

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Statement of Lee Schalk
State Government Affairs Manager
National Taxpayers Union
Submitted to the Missouri Senate Ways and Means Committee
Regarding Senate Bill 220

February 28, 2013

Click here for A PDF Version of this Statement

I. Introduction

Chairman Kraus and Members of the Committee, my name is Lee Schalk, and I am the State Government Affairs Manager for National Taxpayers Union (NTU), the nation’s oldest non-partisan advocate for overburdened taxpayers. On behalf of NTU’s 7,300 members in Missouri and our 362,000 members nationwide, I am submitting this written testimony to urge you to oppose Senate Bill 220, which would raise Missouri’s tobacco tax by nearly 57 percent by 2019.

National Taxpayers Union has long voiced our members’ concerns and opposition to raising so-called “sin taxes” (a deceptive term), and the SB 220 cigarette tax hike is no exception. While supporters of the bill claim that high cigarette taxes are good public policy, the reality is that such taxes disproportionately burden the poor, hurt small retailers, and provide an unreliable revenue stream, which oftentimes results in additional tax increases. As such, state officials should not chip away at the competitive advantage afforded by the lowest tobacco tax rate in the country.

Additionally, Missourians recently provided a clear mandate in November by rejecting Proposition B’s cigarette tax hike. The concerns voters have voiced at the polls should be heeded rather than ignored.

II. Why Cigarette Tax Increases Are Poor Public Policy

A 57 percent cigarette tax increase would harm Missourians suffering the most during continued economic uncertainty. Since the poor are more likely to smoke, Missouri’s low-income families will disproportionately feel the pinch of the SB 220 cigarette tax hikes. A 2007 study by the Heritage Foundation showed that roughly half of smokers live in households below 200 percent of the poverty line.[1] Raising the cigarette tax will burden these families, who are already struggling to get by in a tough economy.

Increasing the cigarette tax will not only hurt low-income families but also retailers, thus undermining the state’s economy. Sales of cigarettes and other tobacco products comprise a substantial portion of business for small retailers across the country. The National Association of Convenience Stores reports that cigarettes account for about one out of every three dollars of total sales nationwide at their establishments. However, the potential for disruption to Missouri’s business climate is especially acute. With six bordering states and a distinct competitive advantage provided by the lowest cigarette tax rate in the country, Missouri has long benefitted from out-of-state tobacco customers. Imposing harmful tobacco tax hikes would make it more difficult for these businesses to attract the same level of consumer activity that has historically benefitted the Show-Me State.

Typically, lawmakers overestimate the new revenues from higher cigarette tax rates and seek additional tax increases. NTU’s 2008 study found that 41 of 59 state tobacco tax increases from 2001-2006 were followed by more expensive tax hikes within two years.[2] Evidence from other states demonstrates just how frequently these revenue shortfalls occur. New Jersey reported a $52 million shortfall in tobacco tax revenues after raising the cigarette tax by 17.5 cents in 2006. Following a major cigarette tax rate boost in 2010, 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 and Mississippi, have also reported gaps in projected revenues following tobacco tax hikes.

III. Conclusion

If lawmakers are committed to protecting low-income individuals and businesses across the state, SB 220 should be rejected. Right now, the Show-Me State has an opportunity to set an example for the rest of the nation to follow. To avoid continuing in Washington, D.C.’s tax-and-spend footsteps, SB 220 and future tobacco tax hikes must be thwarted. The members of National Taxpayers Union, who strongly support efforts to limit government spending and prevent burdensome tax increases, urge you to stop this cigarette tax hike before it inflicts pain on smokers and non-smokers alike.