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New Hampshire's strange cigarette-tax argument

Posted by Jesse Singal  March 18, 2011 02:42 PM

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It's a common argument made by Massachusetts retailers: If we don't cut or eliminate Tax X, residents will flock to the border to shop in New Hampshire, where Tax X is lower or non-existent. But while this certainly happens, there's also a tendency for the issue to be overblown.

So now that New Hampshire lawmakers are making a version of this argument, color me a little skeptical:

From the AP:

CONCORD, N.H.—New Hampshire's House has voted to reduce the state's cigarette tax a dime in hopes of attracting more cross-border sales.

The House voted 236-93 Thursday to cut the tax from $1.78 per pack to $1.68 over opponents' objections that the state could not stand to lose the $16 million in revenue toward spending in next year's budget.

The bill still has to get through the Senate, so it's not a done deal, but I'm a bit confused. Who is the hypothetical customer who wouldn't cross the border to buy a $1.78 pack of cigarettes, but who would do so once the price was dropped to $1.68? Even if you bought in bulk, you'd have to buy 100 packs just to save $10. Are there enough bulk buyers for the extra commerce generated to come close to making up the $16 million in lost tax revenue, especially given that New Hampshire, like just about every other state, has major budget problems at the moment?

Again, there are certainly some legitimate concerns for both Massachusetts and New Hampshire when it comes to cross-border purchases, but there has to be some threshold at which this concern loses out in favor or other, more substantial ones. When you get to the point of arguing that a ten-cent price shift will cause a significant change in consumer behavior (and only a significant change in consumer behavior could justify $16 million in lost revenue), something doesn't compute.

But if anyone thinks I'm missing something and am wrong about this — particularly smokers who live near the border — I'd be curious to hear their take, and would encourage them to sound off in comments.

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