New Hampshire: Tobacco Tax Cut Will Force Deeper Budget Cuts in 2012


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New Hampshire joins the majority of states that have patched next fiscal year’s budget gaps with a cuts-only approach.  Democratic Governor John Lynch will allow the budget to go into effect Friday, July 1 without his signature, fearing a veto would only lead to a more austere budget than the one presented to him last week (the Republicans have a veto-proof majority in the House and Senate).

The budget contains a long list of spending reductions including cutting higher education funds in half (which will lead to higher tuition), state worker layoffs, and cuts to agency funds. 

The most nonsensical cut included in the New Hampshire budget is a 10 cent reduction in the state’s cigarette tax (dropping from $1.78 to $1.68) and lower taxes on other tobacco products.  Proponents of this tax change argued that a decrease in taxes on tobacco would lead to greater revenue as smokers from neighboring states would be incentivized to cross the border to purchase cigarettes. 

However, as the New Hampshire Fiscal Policy Institute (NHFPI) points out, this change is likely to reduce tax revenue by at least $14 million and as much as $30 million over the next two years.  Their analysis points to data from the state’s Department of Revenue Administration that shows even an increase in the sale of tobacco products would lead to the lower end estimated revenue loss.  NHFPI also questions whether or not a drop in taxes would lead to greater tobacco sales given that the long-term trend in cigarette sales is down.

Based in part on the flawed logic of the tax cut’s proponents and in part to the rushed process to include this provision in the final budget bill, lawmakers failed to account for any revenue loss from the tax cut.  This means that New Hampshire’s new budget is likely already out of balance before the year starts and more spending cuts are likely to come mid-year.

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