The New Mexico Senate passed legislation this week that would hike cigarette taxes by $1.50 a pack, while also increasing taxes on smokeless tobacco and creating a new tax on e-cigarettes and vapor products that, ironically, millions of Americans are using to quit smoking.
Proponents of the taxes, like State Sen. Howie Morales (D-28), hope New Mexico will generate an additional $89 million a year in revenues to help fund public schools. The reality is that relying on cigarette taxes to fund any critical program is politically expedient and fiscally irresponsible. When legislators struggle to balance budgets and fuel more spending they rarely want to do the heavy lifting of prioritizing spending, making cuts elsewhere and identifying more reliable funding sources for programs they deem critical.
The easy political move is taxing cigarettes. Smokers have been demonized for generations and most people don’t smoke (or pay cigarette taxes). The number of smokers has been declining on a consistent basis. As smoking rates decline, cigarette tax revenues decline as well. Additionally, as cigarette sales decline, the money going to states from the tobacco master settlement decline as well because those payments are determined by the level of cigarette sales. Thus big picture, relying on cigarette taxes to fund ongoing priority programs —like educating New Mexico’s children— is a fiscally irresponsible choice.
If New Mexico does increase cigarette taxes, it’s likely to generate less money than anticipated. Between 2009 and 2013, 32 states increased their cigarette taxes. In only three of the 32 instances did revenues from those tax hikes actually meet the revenue projections. It’s a good bet that the proposed New Mexico tax hike will come up short of expectations. What then? State legislators will come around looking for more cash during the next budget preparations.
Additionally, New Mexico’s cigarette tax is already higher than most nearby states. Hiking the tax rate to $3.16 per pack would make New Mexico’s tax over a $1 per pack more than the per pack taxes in Arizona, Utah, Colorado, Oklahoma and Texas. The number of state residents willing to cross the border to buy their cigarettes – and gasoline, food and beverage snacks – would likely increase. That means more sales go out of New Mexico and benefit those others states. It also really hurts many New Mexico retailers, especially those within an hour’s drive of the borders.
To add insult to injury, legislators are also attempting to increase taxes on smokeless tobacco and vapor products. Both smokeless tobacco and vapor products provide safer alternatives to smoking. Public health would benefit if every cigarette smoker would switch to e-cigarettes, for example. So why raise taxes in a way that discourages people from seeking a healthier alternative to smoking?
New Mexico Gov. Susana Martinez has vowed to veto any tax increases passed by the legislature. If the House passes these tax increases, she’d be smart to veto the bill.