UTAH RAISES TOBACCO TAX, COLLECTS LESS MONEY

Los Angeles, August 25, 2010 – No matter how many times legislators are told that raising taxes lowers governmental revenues, the lure of more money is too much to resist.

Utah is the latest state to find this out. Since raising taxes on packs of cigarettes from 69.5 cents to $1.70 and other tobacco products (like cigars) from 35% of the wholesale price to 86% on July 1, tax collections are down by as much as half.

The Associated Press reported today that since July 1, "the Utah Tax Commission sold stamps for about 2.8 million packs of cigarettes - about half the monthly average over a period of nearly two months." A huge upward spike in June indicates that smokers were hoarding cigarettes ahead of the tax increase, so it isn't for certain that tax collections will continue at this low level.

But the early returns are no surprise. Robert Clemmer, writing on the Americans for Tax Reform Web site on March 22 correctly predicted that "The Utah Legislature carelessly patched their budget with $44 million that is supposed to come from tobacco revenue despite the fact that states always fail to meet projected revenues. And with what will be happening to smoke shops in Utah, it should be no surprise that these taxes lead to less revenue. Not only will these shops close hurting revenue, but they add to growing unemployment number caused by taxes and government spending" (emphasis added).

The first casualty was, of course, the oldest smoke shop still extant in Salt Lake City - Jeanie's - which closed on June 30 to avoid not just the new taxes, but a floor tax on all existing inventory.

Who's to blame? His name is Allen Christensen, a state senator from North Ogden, who championed the tax raise and promised $50 million in earmarks from the new tax receipts he projected. Told that Jeanie's was closing after he predicted it would stay open, he told the Salt Lake Tribune, "I hate to see any business impacted by the government that actually goes out of business. But on the same hand, these are businesses that are selling a dangerous drug." A real friend of the people, and now the author of a probable deficit in the Utah state budget.
~ Rich Perelman