Experts: cigarette tax hike will not generate anticipated revenue

On the contrary, it could result in pernicious and unforeseen outcome instead of expected enormous revenues.

In accordance with the research, sponsored and recently made public by the Wisconsin Association of Tobacco Retailers and Petroleum Marketers, adding extra 75 cent on the price of each pack, as the introduced proposal to raise the state excise taxes on tobacco products would definitely not prompt to collect the expected revenues to fill the holes in the state budget, whereas it might lead to many negative consequences to the state economy. The proposal to increase excise cigarette tax by 42% that was introduced to the Wisconsin Finance Committee will probably result in revenue drops, judging on the experience of the state that had already increased its cigarette taxes. Looking on the example of New Jersey where the state treasury fell short of almost a third from the anticipated revenues after the tax hike went into effect. Coming after the federal tax increase implemented just a month ago and state tax increase imposed last year, the proposed 75-cent raise would mean a total of 300% cigarette tax hike in a little more than one year.

Dr. Mary Sanderson from the Statistics Department at the University of Wisconsin-Milwaukee and Nelson Chen, Chairman of Taxation Research Institute examined the possible consequences of additional raise of the state tobacco tax.

Dr. Sanderson said that such taxes like the excise tobacco tax have been know to be regressive and therefore, seldom contribute to generating as large revenues as the authorities promise their constituents. Moreover, it has been earlier established that the overwhelming majority of smokers is low-income workers and deprived people, thus taxing to death this unpopular minority is at least unfair if not inhumane.

Nelson Chen added that another reason to doubt about the possibility to collect large revenues since many smokers admitted to simply switch to another means of getting their smokes, like going to neighbor states or visiting online stores; that will as well contribute to decreases in the amount of revenue.

The research specifies several reasons why the Wisconsin Senators should not increase the cigarette tax even more:

• The tax increase will not contribute to collected anticipated revenues.
• Tobacco and other "sin taxes" are not stable and depend on consuming capacity, and thus are fluctuating. Therefore, it would be rather risky to depend on the revenues from such taxes.
• Tobacco taxes are regressive, being aimed at the population minority who is least likely to afford expensive pleasures.
• Smokers will hit the road, going to neighbor states to stock for cheaper cigarettes or even visit discount shops located on the reservations lands; hurting local retailers dramatically.
• The tax increase would consolidate currently growing black market of counterfeit cigarettes, leading to the boom in crime rates, including smuggling and robberies.

The president of the Wisconsin Convenience Stores Association stated that the study, performed by very competent experts demonstrated that the fears of Wisconsin retailers have been rather reasonable since they would be hurt deeply by the tax increase, although their sales have already been dropped because of the recession. In addition, the tax increase would lead to the hike in crime rates, as the black market would blossom as well as the smuggling and thefts. And the last thing was that, the coward "don't tax you, don't tax me, tax that fellow behind the tree" policy hit the poorest the most, what is unfair and inhumane.

In case the introduced proposal would be approved, the 75-cent hike would be added to the $1-a-pack tax raise imposed last January 2008 and the federal tax that went up by 62 cents two months ago. In totality, all the increases in the cigarettes tax will make local smokers pay an extra l $16.20 in just taxes for each carton bought in Wisconsin.