Letter: Tobacco tax increases are outrageous

Talk about it

Within a year of Minnesota enacting the state health impact fees in 2005, which included fees of 75 cents per pack of cigarettes and 35 percent of the wholesale price on cigars, pipe tobacco and smokeless tobacco, sales of tobacco products dropped as much as 30 percent. Twenty tobacco stores just in the Twin Cities metro area alone plus a 100-year-old, third-generation tobacco wholesaler in Bloomington all went out of business. Hundreds of jobs were lost and the livelihoods of hardworking families were destroyed.

Two bills pending in the Minnesota legislature are outrageous because cigarette taxes would be increased by another $1 per pack (or $10 per carton) and the state tax and health impact fee on cigars, pipe tobacco and smokeless tobacco would double once again.

The outrage over these proposed cigarette and tobacco tax and health impact fee increases is felt statewide by wholesalers and retailers. The largest federal tax increase on a single product category in the history of the United States went into effect on April 1, with the federal cigarette tax increasing 62 cents per pack to a new rate of $1.01 per pack (or $10.10 per carton) and the federal tax rate on every other kind of tobacco product more than doubling.

By piling on another $1 per pack and doubling the state tax on other tobacco products, sales of cigarettes and tobacco products in Minnesota will decline by as much as 30 percent. The State of Minnesota already collects nearly half a billion dollars annually in cigarette and tobacco taxes and health impact fees. Apparently, that is not enough for some legislators.

Minnesota may very well experience the same fate as New Jersey if the state’s cigarette tax is raised by another $1 per pack to a new high of $2.23 per pack (or $22.30 per carton). When New Jersey raised its cigarette tax to $2.575 per pack in 2007, cigarette tax collections over the next year totaled $23 million less than before the tax increase. A Minnesota tax rate of $2.23 is getting perilously close to the New Jersey rate and such high tax rates are uncharted waters for numerous revenue departments, which have attempted to project new revenue collections only to have actual tax collections fall far short of the projection.

Moreover, the devastating sales decline of up to 30 percent means that as many as 3,200 of the 32,000 Minnesotans who work for tobacco wholesalers, convenience stores, tobacco stores and gasoline service stations will lose their jobs and an untold number of family-owned wholesale companies and retail stores will be forced to close.

Anti-tobacco advocates will allege that higher cigarette and tax rates may make more people stop smoking or using tobacco products. While that may be true for a relatively small number of tobacco users, a $1 cigarette tax hike and a doubling of the tobacco product tax will prompt more Minnesotans to buy tobacco products over the Internet to avoid paying any state excise taxes or travel to neighboring states to buy cigarettes and tobacco products thereby exacerbating the decline in sales and state tobacco tax revenue collections at the same time.

The savings on a carton of cigarettes would be significant as these tax rates show: Internet purchase: Zero tax (a $22.30 savings per carton); North Dakota: $4.40/carton (a $17.90 savings per carton); South Dakota: $15.30/carton (a $7.00 savings per carton); Iowa: $13.60/carton (a $8.70 savings per carton); and Wisconsin: $17.70/carton (a $4.60/carton savings).

Given all of these potential consequences, wholesalers and retailers across Minnesota have every right to be outraged. It is unconscionable that legislators would jeopardize up to 3,200 wholesale and retail jobs as a result of these proposed cigarette and tobacco tax increases in this deepening economic recession. Lawmakers need to care about hard working Minnesotans and their jobs rather than supporting politically popular, but economically devastating tax increases.

Tags: opinion, letters, tobacco, taxes