High taxes on cigarettes have caused revenue collection for the states to backfire as people move away from the addictive drug and habit, or purchase their products elsewhere. This is a conclusion coming from reports in several states, including California, who saw a decrease in tax revenues as they increased the tax rate several times through legislation.
These new studies are leading some states to begin decresing the tax, or tax rates to try to increase the tax revenues from the sale of cigarettes. On Thursday, March 17th, the state of new Hampshire voted in their House to reduce the cigarette tax to try to up their revenues. Two other states, Rhode Island and New Jersey, as reported this week by the Associated Press, are also looking into lowering their tax rates on cigarettes to help grow sales and revenue.
Interestingly enough, this decision to lower cigarette taxes due to losses in revenue puts to bed the entire notion that cigarette taxes were needed to force people to quit, and to save on health care costs. While several years ago this may have been the primary mantra to get the tax legislation passed, now that local governments are desperately needing this revenue to run their budgets and operations, the thought of cigarettes as a health concern seems no longer is important.
In seekng to decrease the taxes on cigarettes, this action by the state of New Hampshire is in complete opposition to the polcies they have legislated over the past five years. In fact, since 2006, cigarette taxes increased over 100%, and taxation on this product was the first to come up for a vote each time the government wanted additional money for programs.
With the beginning of tax reductions on cigarettes by states along the East Coast, one interesting forecast could emerge as more people drive across states lines to get their products dependent upon who chooses to drop their tax the lowest. States such as New York and Massachusettes have very large taxes on their cigarette sales, and many New Englanders already travel to places such as Rhode Island to buy cigarettes where they are much cheaper. Any massive drop in the tax could lead to even more people crossing over to buy their smokes in other states.
As the high taxes imposed on cigarettes by the states over the past 10 years begin to backfire on their revenues, many municipalities are beginning to reverse this trend, and instead lower taxes and tax rates for the justification of raising more revenue on sales of the product.
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