This morning, the National Taxpayers’ Union sent a letter to Nevada lawmakers warning of the potential impact of proposed increases in Nevada’s “sin taxes” on tobacco and alcohol. NPRI has also warned lawmakers against these highly regressive tax instruments in the past.
Here is what NTU had to say on the topic:
While proponents contend that these punitive tax hikes are a “win” for Nevada taxpayers, the reality is that these regressive schemes rarely, if ever, produce the promised revenue and are burdensome to small businesses and the poor.
Senate Bill 386, which will be heard in the Senate Revenue Committee tomorrow, would hike cigarette taxes to $2.00 per pack, an increase of 150 percent from the current rate of $0.80 per pack. The Assembly Taxation Committee will also be taking up Assembly Bill 333, which would raise cigarette taxes to $1.70 per pack and other tobacco products taxes from 30 percent to 55 percent of the wholesale price. AB 333 would also hike levies on beer, wine, and liquor. All told, this bill would constitute a tax increase on Nevada’s citizens and businesses of more than $250 million at a time when the state is still struggling to extricate itself from the recent housing and financial crisis.
Despite fanciful claims from their advocates, many tobacco tax hikes elsewhere have failed to yield the desired revenue. New Jersey reported a $52 million shortfall in tobacco tax revenues after it raised its cigarette tax by 17.5 cents. Subsequent to boosting its cigarette tax by 50 cents in 2009, the District of Columbia reported that it collected $15 million less than expected, and $7.6 million less than it collected prior to the tax hike. Other states, including Arkansas, Maryland, Mississippi, and Rhode Island, have also reported gaps in revenue collections following tobacco tax hikes.
While tobacco and alcohol products may seem like politically-convenient targets for tax increases, the reality is that they are a major source of business for convenience stores and other retail outlets. Raising taxes on cigarettes, beer, wine, and liquor would place Nevada businesses at a serious competitive disadvantage to those in neighboring states like Arizona, Utah, and California, which in some cases would levy significantly lower taxes if SB 386 or AB 333 were to pass. Moreover, since moderate income residents are more likely to partake in these products, they will disproportionately feel the impact of an increase in tobacco and alcohol taxes. Raising a tax that threatens to curtail commercial activity (thereby shrinking the revenue base) and heavily burdens the poor makes no economic sense.