Thursday, April 24, 2014
Today's paper has a story from Kelley Bouchard about an effort to increase Maine's cigarette taxes by $1.50 a pack (from the current $2 per pack rate). Advocates say that the tax hike would discourage the unhealthy habit and generate more funding for better health care.
But new estimates from Michigan's libertarian Mackinac Center for Public Policy indicate that such efforts might be undermined by our neighbors in New Hampshire. In a study that compared estimated cigarette consumption with actual state sales, the Mackinac Center concluded that "for every 100 packs of cigarettes consumed" in the Granite State, "almost 27 packs were smuggled out."
In Maine, the researchers estimate that roughly 18 packs are unaccounted for in in-state sales for every 100 packs actually consumed here.
Here's a chart of their estimates for the New England region. Darker red shades indicate higher rates of smuggling imports, and blue shades indicate rates of smuggling exports (roll over each state to see tax rates):
Note that Vermont, whose current tax rate is higher than Maine's (and much higher than New Hampshire's), is still a net exporter of smuggled cigarettes — probably due to its proximity to New York, where the per-pack tax is a whopping $4.35 and where more than half of consumed cigarette packs are estimated to be smuggled in from elsewhere.
Of course, the smuggling issue doesn't necessarily mean that increasing the tax rate here in Maine wouldn't be effective in discouraging people from smoking, or raising new revenue. After all, a trip to New Hampshire is also expensive for most of us — it's a safe bet that most Maine smokers would grudgingly pay the higher tax rate in exchange for the convenience of getting their smokes close to home.
And lest you conclude that Maine should lower its taxes instead, New Hampshire just happens to offer a cautionary example. Lawmakers cut their cigarette tax rate by ten cents in June 2011. They thought that it would increase revenue and economic activity by encouraging exactly this kind of out-of-state buying.
But interestingly, within 24 hours of when the tax cut took effect, cigarette manufacturers raised retail prices by an equal amount, thus eliminating any benefit of the tax cut to consumers! Smokers are paying the same price they paid before the tax cut — but now, ten cents out of the price of every pack is going to the cigarette companies, instead of to New Hampshire's state government.Tweet
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