Millions in tobacco taxes at stake for Vermont
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By THOMAS A. BRIANT - Published: July 1, 2007
The U.S. Senate Finance Committee is considering legislation to reauthorize and expand the State Children's Health Insurance Program, a federal program that has merit because it provides states with funding to make health insurance available for children in low income families. However, this proposal would fund the SCHIP program by increasing the federal cigarette tax from 39 cents a pack to $1 per pack and raising the federal excise tax on other tobacco products including cigars, pipe tobacco and smokeless tobacco by 156 percent.
If the federal cigarette and tobacco tax increases are enacted, the state of Vermont could lose an estimated $4.2 million in state cigarette tax revenue plus approximately $1.96 million in national cigarette settlement payments for a projected annual revenue loss of $6.17 million. Additionally, the state revenue decline will be even higher when lost excise tax revenue on other tobacco products is calculated. Moreover, based on Congressional Budget Office projections, it is estimated that all 50 states would lose an aggregate of $1.66 billion dollars in state cigarette tax revenue and national settlement payments if the federal cigarette tax is raised.
This significant impact on state budgets would occur in 2008 and future years because a February, 2007 Congressional Budget Office report estimates that for every 10 percent increase in the price of cigarettes, national cigarette sales volumes will decline by up to 5 percent. Since the proposed 61 cent per pack tax increase is actually closer to an average 14 percent price rise, national cigarette sales volumes may decline by up to 6 percent or more based on the CBO report calculations. With a 6 percent sales decline, each state's cigarette and tobacco tax collections would decrease by a similar percentage and the annual tobacco settlement payments would also be reduced because these installments are based on national cigarette sales volumes.
Many states have learned that an excessive increase in cigarette and tobacco taxes results in a shift to black market cigarette trafficking and an elevated risk of store robberies because of the higher value of cigarettes and tobacco products. Also, cigarette and tobacco taxes are very regressive and have a greater impact on lower-income citizens who choose to purchase legal tobacco products. In short, this drastic increase in federal cigarette and tobacco taxes would have severe financial consequences for the states, retailers and consumers.
To avoid a devastating impact on family-owned retail businesses and to prevent a significant revenue loss for the state of Vermont, Congress needs to find an alternate, broad-based revenue source to fund the reauthorization and expansion of the SCHIP program.
Thomas A. Briant is executive director of the National Association of Tobacco Outlets in Minneapolis.
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