Wisconsin Milks the Cash Cow

On the heels of the State Children’s Health Insurance Program, which increased the federal tax on tobacco 156% to $1, Wisconsin has proposed a $1 tax increase on cigarettes for the new Wisconsin State Budget.

However, the timing of the tax and strategy behind what the state hopes to accomplish was blasted as irresponsible by the National Association of Tobacco Outlets (NATO).

“The experience of New Jersey’s $2.57 per pack cigarette tax should be a reality check for all Wisconsin legislators. Based on the New Jersey outcome and similar experiences by other states, Wisconsin Gov. Jim Doyle’s proposal to raise the state cigarette tax by another $.75 per pack to $2.52 per pack plus enact higher tax rates on other tobacco products means that Wisconsin will collect less in excise tax revenue than before the increase,” said Tom Briant, executive director of NATO. “Following on the footsteps of Gov. Doyle’s $1.00 per pack cigarette tax increase last year, it is time for Wisconsin lawmakers to stop increasing taxes on cigarettes and other tobacco products and instead raise taxes on beer, wine and liquor. Legislators need to give this recommendation careful consideration or Wisconsin will find itself in a worsening revenue situation with more family-owned retail businesses forced to close and employees laid off.”

What Gov. Doyle fails to take into account, and what has made the fiscal side of tobacco taxes worse, is the deteriorating tax environment for states due to the new federal cigarette and tobacco tax increases. Just last month, Congress passed and President Obama signed into law the single largest increase in the federal cigarette and tobacco tax rates in the history of the U.S. to fund an expansion of SCHIP.

“The Congressional Budget Office and the Treasury Department estimate that these large federal cigarette and tobacco tax increases will cause tobacco sales to decline by at least 10% nationwide,” Briant said. “Consequently, Wisconsin will lose more than $56 million per year including $11 million less in Master Settlement Payments from the cigarette manufacturers and $45 million in state tobacco taxes. As a representative of Wisconsin tobacco retailers who depend on tobacco product sales, we collectively say once and for all enough is enough.”

“Gov. Doyle, with the assistance of the legislature, has repeatedly penalized our member stores and their customers with higher and higher tobacco taxes,” Briant continued. “If another tax is added along with increased taxes on other tobacco products, then the legislature and the Governor must be ready to take responsibility for creating an even greater state general fund deficit and forcing hard working Wisconsin retailers to close their stores and lay off their employees.”

But unlike many advocates who say “enough is enough” only in protest, NATO believes that it is time to raise the excise taxes on beer, wine and liquor which have escaped any increase for decades. “The disparity between the excise tax rates on tobacco and alcohol is shocking,” Briant said.

According to NATO, in order to pay the equivalent of the proposed $2.52 in tax on a single pack of cigarettes, a Wisconsin resident would have to purchase:
* 69 six packs of beer to equal the same dollar amount of tax on a pack of cigarettes; or
* 50 bottles of wine to equal the same dollar amount of tax on a pack of cigarettes; or
* Four-fifths of spirits to equal the same dollar amount of tax on a pack of cigarettes.

“Tax increases on alcoholic beverages are necessary so that a broader base of Wisconsin residents contribute to solving the state’s budget deficit and not just those who purchase tobacco products,” Briant said. “It is time to set aside politically expedient tax increases like Gov. Doyle’s proposal and raise taxes on beer, wine and liquor.”

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