Cigarette tax impacts state revenues and smokers

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(Host) Last spring the Vermont Legislature approved a two-tiered increase in the state cigarette tax. The first hike went into effect last July 1 when the per pack tax went up 49 cents.

VPR’s Steve Zind takes a look at the effect the tax has on businesses, state revenues and smokers.

(Zind) Beth Munyon says from her vantage point behind the counter at M & M Beverage in Randolph, it’s hard to tell what the effect of the cigarette tax hike has been so far.

(Munyon) “A lot of people are still purchasing them. A lot of people are saying that they’re going to quit. Or they’re buying roll-your-own. It’s really hard to tell if they’re actually quitting.”

(Zind) According to Munyon, many people complain about the price, but they’re still willing to part with $40 for a carton of cigarettes. But Gillis Moreau, who owns four M & M Beverage stores, says he’s seen the impact of the tax.

(Moreau) “I’m missing probably 25% of my cigarette sales.”

(Zind) Moreau says his Brattleboro store has been hurt by Vermonters crossing the border into New Hampshire to buy cheaper cigarettes. He also sees more people buying loose tobacco and rolling their own for about a third the price of manufactured cigarettes. Others are switching to cheaper generic brands. In the long run, he believes it will add up to less revenue for the state, in spite of the tax increase.

(Moreau) “The more you tax it, yes, it’s going to produce more tax money, but the less people are going to buy it. So in effect it backfires on you because you don’t sell as much of it. So you’re not going to get the tax money you were getting in the first place.”

(Zind) A former smoker himself, Moreau says he doesn’t think people quit smoking because of the price. They just find cheaper ways to fund the habit.

Tina Zuk of the Coalition for a Tobacco Free Vermont says it’s too early to tell how many Vermonters have given up smoking because of the tax increase. But Zuk says there’s plenty of historical evidence showing a link between quitting and the price of cigarettes.

(Zuk) “One of the statistics that we know really well is that for every 10% increase in the price of cigarettes, the amount of smoking by youth decreased by 7% and the amount of smoking by adults, decreases by 4%.”

(Zind) Zuk says people quit over a period of time, as they begin to question the expense of cigarettes. So far, there’s little evidence the tax increase has translated into fewer smokers.

Calls to the American Cancer Society’s smokers Quit Line the month after the tax hike were actually fewer than in the month before the increase went into affect.

Fifty-eight million packs of cigarettes were sold in Vermont last fiscal year. That number is expected to drop this year as a result of the tax increase. But state officials built that expected decline into their revenue forecasts.

In the months since the hike went into effect, their predictions are on track. Vermont stores are selling fewer cigarettes, but the state is collecting more money.

Joshua Slen is a budget analyst with the Department of Finance and Management. Slen says the state is nowhere near the point where people find cigarettes so prohibitively expensive they’ll forego the convenience of buying them at the local store and get them out of state or on the Internet.

(Slen) “We’re not there yet and although we don’t know the exact penny where we reach the point on the curve where the next penny produces less money than it actually raises, so a negative rate of return. It would be a magnitude much greater than we’re at now. Something in the order of what New York City’s done, where we’re raising it at two or three dollars a pack.”

(Zind) Vermonters will see a second increase in the state cigarette tax next July 1, when the price will go up another 26 cents per pack.

For Vermont Public Radio, I’m Steve Zind.

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