Utah doesn't need cigarette-tax hike

Amid falling tax revenue and the worst recession in a generation, Utah lawmakers last year avoided that which their counterparts in other states could not: tax increases.

Consistent with Utah's well-known tradition of fiscal responsibility, Gov. Gary Herbert recently declared that the best path through the current budget crunch is "to exercise continued fiscal restraint and to not raise taxes." Yet some lawmakers and special-interest groups known for demanding bigger government have continued to push for higher income, gas, telecom, sales and cigarette taxes — with by far the most attention paid to taxing smokers.

There is a reason why Utah's unemployment rate and economy are in better shape than most other states — the comparatively low, flat taxes that don't discriminate between individuals or businesses. Regardless of one's opinion on whether or not people should smoke, there are strong common-sense reasons for not raising this or any other tax.

Targeted excise taxes rarely raise the revenue projected. When prices go up from a tax, consumption declines and takes the new tax revenue with it. Higher taxes will discourage smoking, but fewer cigarette sales also mean less tax revenue. When New Jersey raised the cigarette tax just 17.5 cents in 2007, the state collected $52 million less than projected and $22 million below what it raised before the tax hike. Last year, on the heels of a 156 percent increase in the federal cigarette tax rate, both Arkansas and Mississippi passed tobacco tax increases only to find multi-million dollar drops in tax revenue just months later.

This sort of unpredictable volatility from targeted taxes can cause serious problems when budgeting. It can also lead to future budget shortfalls that prompt lawmakers to raise taxes once again to cover lost revenue. A cigarette tax hike now becomes a placeholder for future income, sales or other tax hikes. Targeting groups of people or businesses for additional tax revenue is not only bad for budgeting but bad for employers. Tax increases almost always fall squarely on private businesses that are already struggling in this recession. The Utah Senate's proposal to raise the cigarette tax is projected to bring in $94 million for the state but is simultaneously projected to cost retailers and businesses $114 million — significantly more than the tax could even raise. This translates into job and wage cuts, less capital to expand businesses and even a loss of business tax revenue for the state.