Out of Control Policy Blog

Minnesota's Proposed Cigarette Tax Wouldn't Work Even if They Tried

Minnesota's government shutdown is causing all sorts of deja vu for those who remember the 2005 budget crisis in the Gopher State. Then-Gov. Tim Pawlenty, currently running for the 2012 GOP (vice) president nomination, was able to solve the crisis by creating a "user fee" on cigarettes that basically was a sin tax. Gov. Dayton has proposed something similar as a package to get out of the current budge crisis and get the government rolling again.

But Pawlenty's tax didn't work! Why try again?

In a new piece over at Reason.com, Carson Bruno and I point out that while the GOP was right in shooting down the proposed tax on smokes earlier this week, there are more than political reasons to oppose it. 

Even if the proposed tax were accepted and the budget passed in Minnesota, the state could be right back where it started within just a few months. Additional revenue from Gov. Pawlenty’s 2005 tax increase was estimated to generate $174 million per year, but Minnesota's cigarette tax revenue has only increased by an average of $4 million per year—a paltry 2.72 percent of the estimate.

Seriously! They want to try that again? The budget gap today is bigger than the missed revenue from the Pawlenty tax so they'd still be in this mess anyway. But the failed revenue grab certainty is part of the reason Minnesota is in state finance hell. At the very least the dependence on a known inconsistent revenue base is indicative of state fiscal irresponsibility.

Consider that in 2008 at Maryland cigarette tax increase only yielded 50 percent of projected additional revenue. Near by to MN, a Illinois cigarette tax has actually wound up decreasing revenue by $69 million since passage in 2007.

Read the rest of the piece here

Anthony Randazzo is Director of Economic Research


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