Study: N.J. Cigarette Tax Hike to Result in $12M Loss

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Study: N.J. Cigarette Tax Hike to Result in $12M Loss

TRENTON -- A proposed plan by Governor Jon Corzine to raise the state's cigarette tax 12.5 cents per pack would hurt—not help—the state's attempts to raise more revenue, according to a recent study by retail research firm BALVOR, which was cited in a Millennium Radio report.

While Corzine said the plan is estimated to generate $26 million in fiscal 2010, the BALVOR study found the proposed tax hike will likely lead to a loss of state revenue of roughly $11.7 million during that year. That dollar figure only accounts for the impact directly related to the sale of cigarettes in the state, and when ancillary sales are included, the state's coffers would likely lose an additional $3.3 million, according to the report.

Treasury Department spokesman Tom Vincz defended the positive revenue estimates.

"The bottom line is that our revenue forecasters take behavioral changes into account when they estimate revenue from a cigarette tax increase," he told Millennium Radio. "That's why we don't calibrate the revenue increase on a dollar for dollar basis when proposing a tax increase. They know that a certain number of smokers will react to an increase by quitting, buying from other jurisdictions, reducing consumption, etc. And that history shows that some of this behavior reverses itself and old buying habits resume."

Vincz added: "We stand by our estimate that the 12.5 cent increase in the cigarette tax, from $2.57 to $2.70 would raise $26million for FY 10."

The Center for Policy Research of New Jersey (CPRNJ) argued the proposal will further penalize small business owners by encouraging smokers to seek lower-cost, out-of-state purchasing alternatives.

"If the increase is passed, the state will likely need to raise taxes elsewhere or resort to cutting funding to state programs," Gregg Edwards, CPRNJ president, told Millennium Radio. "New Jersey's cigarette tax is counter-productive. It's a money-loser for treasury. It robs customers from New Jersey retailers. It provides organized crime and street gangs with a low-risk way to finance their criminal activity. It forces local police departments to prevent the illegal sale of a commonly available legal consumer product, and it makes cigarettes more accessible to teenagers."

In addition, the BALVOR study revealed after the last cigarette tax hike in the state in June 2006, revenues shrank for the next two fiscal years. In total, revenues fell almost $24 million below fiscal 2006's receipts, the report stated.