An Open Letter to the West Virginia Legislature: Reject Fiscal Gimmicks and Protect Taxpayers, Reject SB 1005!
To the Members of the West Virginia Legislature,
On behalf of National Taxpayers Union’s (NTU) Mountain State Members, I urge you to reject SB 1005. If enacted, the bill would raise the state’s cigarette tax from $0.55 per pack to $1.00 and raise the tax on smokeless tobacco from seven percent to 12 percent. Though NTU applauds the House of Delegate’s amendments to strip the bill of onerous taxes on e-cigarette vapor fluids – a vital tool to help those curbing their smoking habit – the bill remains fundamentally flawed.
In the name of improving health outcomes and generating additional government revenues, the Governor and some legislators would have West Virginia increase its stake in ensuring sufficient numbers of Mountain Staters continue to smoke in order to pay for more government programs. If this approach seems paradoxical – a tax hike sufficient to pay for new spending but not too high that it would endanger this revenue stream by depressing smoking too much – that’s because it is. Simply put, increased cigarette taxes are an ill-conceived way to fund government.
For starters, cigarette taxes are highly regressive, affecting low-income earners far more than high-income earners. It is estimated that over half of adult smokers make less than 200 percent of the Federal Poverty Level. In other words, the tax hikes under consideration would hit particularly hard those West Virginians who can least afford to pay for them.
Next, the National Association of Convenience Stores estimates that tobacco sales account for approximately one-third of all sales at convenience stores. These are small businesses usually owned and operated locally. Increasing costs on small retailers in West Virginia at a time when the state’s unemployment rate is significantly higher than the national average is not a wise idea.
In addition, if West Virginia increases its cigarette taxes by $0.45 per pack to $1.00, neighboring Virginia would have a lower tax rate. This creates an incentive for black market purchases or for cross-border sales of tobacco products.
Finally, and perhaps most importantly, cigarette taxes usually yield far less revenue than initially projected; as the non-partisan National Conference of State Legislatures succinctly noted, “cigarette taxes are not a stable source of revenue.” A 2013 study by the National Taxpayers Union Foundation found that revenue projections were met in only 29 of 101 cases where cigarette and tobacco taxes were raised between 2001 and 2011. That same study concluded that over the same period, tobacco tax hikes were followed by other tax hikes nearly 70 percent of the time, usually after revenues failed to meet initial rosy projections.
The West Virginia Legislature is facing a major choice this special legislative session. One path leads to higher taxes and more government while the other leads to fiscal responsibility and lower taxes. The conservative approach is the sensible path favored by most Mountain Staters. For these reasons, the House and Senate should reject tax hikes on West Virginia’s citizens.
Sincerely,
Clark Packard
Counsel and Government Affairs Manager