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Massive cigarette tax hike would burn state

If you give a mouse a cookie, he’ll want a glass of milk. That wasn’t just the first in a long line of “If You Give …” books written by Laura Numeroff, but it’s an example of how proposed tax hikes and state addictions to tax revenue are self-repeating and circular. Gov. Brian Sandoval’s budget and state Senate Majority Leader Michael Roberson’s most recent amendments are good examples of this.

Gov. Sandoval began the 2015 legislative session by proposing the largest tax increase in Nevada history. He proposed making permanent the 2009 “temporary” tax hikes, along with a dramatic restructuring of the business license fee and a higher excise tax on tobacco sales. While most revenue comes from the permanent extension of those not-so-temporary tax hikes and the business license fee — a smaller version of the margins tax rejected by voters last year — the proposed tax hike on tobacco sales just grew a bit bigger.

Roberson took Sandoval’s proposed 40 cents-per-pack cigarette tax hike and raised it by 150 percent to $1 per pack last week in committee, which would increase the current tax from 80 cents per pack to $1.80. If you give a mouse a cookie …

Roberson’s proposal in Senate Bill 483 would make the cost of cigarettes sold in Nevada higher than nearly every state in the region, including perhaps the most anti-smoking state on the West Coast, California. Nevada’s western neighbors tax cigarettes at 87 cents per pack, 7 cents higher than Nevada now and 93 cents less than Roberson’s amendment.

The tobacco tax is a regressive levy that targets a specific group of low-income individuals, disproportionately funding government on the backs of those who can least afford it. Cigarette taxes have proved to be unstable revenue streams that rarely deliver the amount of revenue projected, even with assumptions about declining rates of smoking.

Nevada’s 80 cents-per-pack competitive tax results in cigarettes actually being exported to higher-tax states such as Arizona, which due to its $2-per-pack levy has the second-highest rate of cigarettes smuggled into the state, according to the Tax Foundation and the Mackinac Center for Public Policy. The more that revenue-hungry politicians raise tobacco taxes, the more profit smugglers make. Only New York has a higher rate of smuggled cigarettes.

Higher taxes have unintended consequences, including smuggling, product and tax stamp counterfeiting, and even violence. To avoid higher cigarette taxes, consumers constantly demonstrate that they are willing to purchase the products in less expensive markets.

In May 2012, when Illinois raised the cigarette tax by $1 per pack, nearly doubling the state’s rate to $1.98 per pack, the tax delivered $138 million less than expected. What’s more, local small businesses lost tens of thousands of dollars as a direct result of consumers purchasing tobacco across state lines.

The Federal Bank of Atlanta reports that smokers earn an average income of $27,248 annually. Whereas the governor’s business tax proposal attempts to target small and large businesses, this proposal targets low-income individuals most significantly.

Cigarette taxes frequently turn out to be placeholders for tax hikes in the future. This is especially true in states with no plans to rein in spending going forward.

It’s clear with Gov. Sandoval’s proposed $800 million in spending increases over the next two years that Nevada politicians have no plans to rein in spending anytime soon. Legislators have a spending problem and an addiction to recklessly spending taxpayers’ dollars, without real reform to drive down the cost of government.

When Tesla CEO Elon Musk demanded $500 million in cash from Nevada taxpayers to build a factory, the state gave him more than twice that in the form of taxpayer handouts over 20 years. There was a built-in assumption that someday, somehow, this would be an affordable endeavor.

Four months later, the governor announced his budget proposals, and it became clear when and in what way one such spending endeavor would be funded, in the form of a $1.1 billion tax hike over the next two years, and every two years after that in perpetuity.

Sandoval gave Roberson a cookie. The majority leader ran with it and is now demanding milk. This is unfortunately unsurprising, but the state Assembly should stand with taxpayers and deny the governor and state Senate these unaffordable and unsustainable “treats.”

Paul Blair is the state affairs manager for Americans for Tax Reform. He can be reached at pblair@atr.org.

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