Automatic Tax Increases are Not Good Policy

Letter: Continued cigarette tax policy will increase smuggling from other states

Author’s Note: This was originally published Friday, March 20, in the Post Bulletin (see Postbulletin.com).

The Post Bulletin’s recent op-ed arguing for maintenance of the state’s existing automatic tax increase on cigarettes (Our View: Cigarette tax should be left alone, March 12, 2015) is misleading and shortsighted on several fronts.

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First, it does not provide evidence to support its assertion that “the number of smokers in Minnesota has continued to drop since the Legislature raised the excise tax on cigarettes in 2013.”

Instead it cites Minnesota surveys conducted in 2010 and 2014 that show a rate decline of 10.6 percent (from 16.1 percent to 14.4 percent). Most of the decline took place before the tax hike was imposed.

Second, in 2012 we estimated the average cigarette consumption decline among states at 2.3 percent. This alone explains almost 87 percent of the smoking rate drop the Post Bulletin erroneously credits to Minnesota’s previous cigarette tax hike.

Lastly, we estimated the smuggling rate differences in Minnesota with an excise tax rate of $2.83 and $2.90. Raising the tax by 7 cents hiked the state smuggling rate by 0.8 percentage points. If that becomes an annual average Minnesota will remain a top five smuggling state and for little in the way of gains to public health.

A better solution is to adopt the bill repealing automatic adjustments upward and let the real price of cigarettes drift back down to more rational levels.