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Nanny Staters Wrong on Excise Taxes
First appeared on ATR.org.
In a recent letter to Georgia Governor and Taxpayer Protection Pledge signer Nathan Deal, ATR warned that excise tax increases drive commerce across state lines and would hurt Georgia businesses if enacted in the upcoming 2012 legislative session. PolitiFact decided to take a look at ATR's assertion and found it to be true:
The question for us: Do excise tax increases, as Norquist wrote, "drive commerce across state lines"?
Excise taxes are placed on items such as cigarettes and alcohol. Most excise taxes are on cigarettes. Georgia, like most Southern states, has among the lowest excise taxes on cigarettes (37 cents a pack) in the nation. One news report earlier this said state Senate leaders are considering raising the cigarette tax by $1 a pack.
The Americans for Tax Reform staff argued its case that Norquist is right, pointing to the results of excise tax increases in three places, Chicago, Washington, D.C., and South Carolina. Here’s a closer look:
ATR told us that Chicagoans flocked to neighboring Indiana when Cook County, which encompasses the Windy City, raised its cigarette tax by $1 in 2006. After the 2006 changes in Cook County, Chicagoans paid among the highest prices for cigarettes in the country. A team of University of Illinois-Chicago researchers found in a sample survey of discarded cigarette packs that 75 percent of them came from outside Cook County, The Huffington Post reported. The taxes on a pack of cigarettes in Chicago in 2007 was $4.05. The taxes were $1.37 outside city limits.
ATR says Washington saw an 11 percent net decline in cigarette tax revenue after it raised the cigarette tax by 50 cents, to $2.50 a pack in 2009. Cigarette taxes in the nation’s capital were already higher than most states before 2009. In Virginia, the taxes for a pack of smokes is 30 cents, nearly the lowest in the nation. Missouri has the lowest cigarette taxes, 17 cents a pack, according to the Campaign for Tobacco-free Kids. City officials still expected to bank $30 million from the increase, although it was less than their initial projection of about $45 million.
Georgia saw a net increase in cigarette sales of nearly 1.3 million packs in the six months after South Carolina raised its excise tax rate in July 2010, ATR says. Cigarette tax revenue did decline slightly in South Carolina in the first 12 months since its increase, records show. South Carolina previously had the lowest cigarette tax in the nation, at 7 cents a pack. It’s now 57 cents a pack. Many smokers in the Palmetto State were not happy with the changes.
Matthew Farrelly, whose research on cigarette excise taxes has been used by others, said some people will travel across state lines to buy cigarettes once excise taxes are raised. Other smokers will buy by the carton or choose a lesser brand to save money, he said.
To read the article in its entirety, click here.