Heated debate over proposed N.H. tobacco tax cut

During a floor debate in the Legislature last month on lowering the New Hampshire tobacco tax, Rep. Patrick Abrami, R-Stratham, said the move was necessary to help small businesses rebound and strengthen a competitive advantage in lower cigarette taxes with neighbor states.

"We have reached the tipping point," Abrami said about the sizeable increase in tobacco taxes that had taken place since 2006. "We are hurting our merchants. We are losing sales on our borders."

According to the New Hampshire Grocers Association, tobacco sales topped more than $755 million in 2010 and the prevailing theme among supporters of a measure to cut the tobacco tax is a reduction of 10 cents a pack, from $1.78 a pack to $1.68 per pack, is appropriate, and other tobacco-related products should be reduced by an average of 17 percent, leading to greater state revenues.

Buoyed by a recent Southern New Hampshire University study that estimates that decreased tobacco taxes will lead to more sales and more state revenues by as much as $13 million, supporters of the tax cut got overwhelming support in the House to pass the measure. The Senate is now considering the bill.

But critics of the proposal point to the just-released study by PolEcon Research in Dover, which questioned the economic and historical assumptions in the SNHU report. The PolEcon report also disputed claims that other sales and state revenues would rise and stated the likely outcome would be a $9 million drop in state revenues.

John Dumais, president of the grocers association, said the SNHU report verified the soundness of a "what's good for the state is good for grocers" approach. "This report makes it clear that a cigarette tax decrease, while not a magic bullet, would make a substantial contribution to solving New Hampshire's financial difficulties," Dumais said. He added that depending on tobacco sales as a significant funding source for the state budget was "bad public policy."

The state Department of Revenue Administration estimates a cut in tobacco tax will lead to estimated drop in revenues ranging from $7 million to $14 million. After business taxes and rooms and meals tax, collections from cigarette and tobacco product sales account for the third highest source of revenue for the state budget. Through March, the state reported that tobacco tax collections were $9 million above revenue estimates for fiscal year ending June 30.

A spokesman for Gov. John Lynch said it would hurt revenues unnecessarily at a time when the state couldn't afford it and the 10 cents per pack cut will have little effect on drawing any more smokers across state borders.

"We would have to sell 15 million more packs of cigarettes to make up the revenue loss at a time when they are cutting services to the developmentally disabled," said Colin Manning. He said the cut is also bad public health policy as it would encourage more youth smoking and use of other tobacco products.

New Hampshire has raised its tobacco tax aggressively from 52 cents a pack in 2006 to the current $1.78. By comparison, the closest state is Maine at $2 a pack and Massachusetts is $2.51 a pack. The SNHU study estimates that 50 percent of all tobacco purchases in the state are from out-of-state buyers.

Dumais said that "99 percent" of his members, many of whom are small convenience store owners, support the tax cut and believe it will lead to more auxiliary sales and increased profits, which will in turn lead to greater revenues to the state with increased business profits taxes paid. He said many convenience owners along the state lines to Maine and Massachusetts have criticized the tobacco tax hikes as hurtful to their businesses.

The PolEcon study emphasized that any loss in sales to retailers had far less to do with tobacco tax hikes than the cost of gasoline. The Campaign for Tobacco Free Kids, one of the organizations that commissioned the PolEcon study, said the report disputed claims that lower tobacco taxes would lead to wider sales and increased gasoline, rooms and meals, and alcohol taxes.

"Higher cigarette taxes haven't hurt New Hampshire's economy or convenience stores," said Kevin O'Flaherty, the Northeast director for Campaign for Tobacco Free Kids. "To the contrary, higher cigarette taxes have been shown to improve state revenue and increase the number of convenience stores while preventing kids from becoming addicted to these deadly products."

O'Flaherty believes there will actually be minor health care costs from the cigarette tax cut because it's unlikely that smokers looking for a bargain will see any decrease in the retail price. Most of the dime-per-pack decrease will be pocketed first by manufacturers and then by the retailer, he said.

When asked why, if the economic benefits were so certain, didn't supporters push for a much deeper cut in the tobacco tax, Dumais said it was contemplated but a smaller figure was chosen as a first step "to prove our point."