Tobacco Tax Up, Revenues Drop
New Jersey example shows Oregon this discrimination tax has its limits
Gregg Edwards recently wrote, New Jersey “is the first state in the nation to experience a decline in cigarette tax revenues after increasing the cigarette tax.” This phenomenon is of import to Oregonians.
Why? Because this fall Oregonians will vote on Measure 50, which seeks to increase taxes on demonized tobacco, and cements it in the state constitution. Over the next few years, the tax increase will supposedly raise hundreds of millions of dollars for new and old government programs. But New Jersey shows, revenues can drop. And, once the government programs grow and should tobacco tax revenue fall, expect other taxes to be increased. It will be mandated by the Oregon Constitution.
In 2006, Center for Policy Research of New Jersey president Edwards and crew predicted that the Garden State revenue drop would occur. A year later, Edwards reviewed the facts in an August 19, 2007 Asbury Park Press commentary:
To support the Fiscal Year 2007 state budget, [NJ] Gov. Corzine successfully proposed increasing the cigarette tax by 17.5 cents, from $2.40 to 2.575 per pack. It was the fourth tax increase in a six-year period and it made New Jersey’s tax the highest state tax in the nation.
Here was the result: In FY 2006, the cigarette tax raised more than $787 million. In FY 2007 “” after it was hiked by almost 7 percent “” the tax raised only $764 million, or $23 million less than the previous year.
According to Edward’s commentary, the Center’s prediction that the tax had reached a tipping point, “in part, relied upon a clear pattern in cigarette sales. As New Jersey increased its tax, cigarette sales declined.”
Some of the sales decline was due to smokers giving up an expensive habit, but that can’t explain its magnitude. Many smokers don’t buy cigarettes from New Jersey retailers. Instead, some purchase cigarettes in the states that border New Jersey, all of which have lower cigarette prices. While New Jersey’s sales are plummeting, Delaware’s are increasing. And it’s certainly not the case that more Delaware residents are becoming smokers. Also, some smokers make purchases via the Internet. Others even buy in the black market, which owes its very existence to New Jersey’s steep tax.
If Measure 50 passes, Oregon’s cigarette tax would be among one of the highest in the country. Our neighboring states — Idaho, California, and Nevada — could expect increased sales as Oregonians cross the border to buy: All of their cigarette taxes are lower than Oregon’s and they would be much, much lower after Measure 50. In sum, a tax revenue drop for Oregon is highly plausible.
New Jersey has shown Oregon that we’re seemingly reaching the butt, if you will, with taxing smokers. The question remains: When they’ve been taxed to the point where it serves no political purpose, which Oregon sub-group is next? Fear not, as history has shown, there are plenty of other human activities that can be easily demonized and politically exploited — and enshrined in the state Constitution.