This year as voters decide critical races in the upcoming midterms, they will have a chance to make decisions on major policy initiatives that will be on the ballot. In Montana, there is a terrible measure to increase taxes. Specifically, this measure would raise the tax on cigarettes by $2 per pack, which would represent a 118 percent increase in the current tax. The measure would also increase taxes on chewing tobacco and all other tobacco products, including e-cigarettes and other vapor products.
Montana I-185, the Extend Medicaid Expansion and Increase Tobacco Taxes Initiative, would go to funding the state’s Obamacare Medicaid-expansion program. Like most excise taxes, it will likely fall short of the projected revenue. These shortfalls usually come with more stress on the state budget, and lead to further tax increases. Furthermore, tobacco tax increases harm local businesses and consumers, and encourage illicit activity.
I-185 is a tax increase that would go straight to a health care budget that has seen continual increases over the last six years, including a 28 percent increase for the Fiscal Year 2016. A regressive tax increase like I-185 would disproportionally hit businesses and the middle class, and likely create an excuse for more tax increases when revenue projections fail to materialize.
We’ve seen this play out before. Here’s three recent examples:
Washington, D.C. — In 2009, the District of Columbia raised taxes by .50 cents but they missed their revenue projections by $15 million.
New York continues to increase their tobacco tax rates and they continue to miss the mark on revenues, despite having the top rate. The state has lost well over $1 billion in revenue in the last decade and they still haven’t learned why increasing taxes is a terrible policy with terrible results.
Another state notorious for tax increases is Illinois. They increased taxes on tobacco in 2013 and yet the revenue hasn’t been anywhere near what the state told taxpayers it would be. According to a recent study, from the Illinois Department of Revenue, the cigarette tax increases were more than $100 million short in revenue projections.
Montana voters should reject I-185. Increasing taxes on tobacco has proven to not only result in the need for more tax increases amid failing revenue projections, it also puts increasing pressure on state resources to combat illicit activity. The Mackinac Center for Public Policy put out a study that determined “smuggling rates generally rise in states after they adopt cigarette tax increases.” The Tax Foundation also put out numbers showing that New York, which has the highest tax rate on tobacco, also had the “highest inbound smuggling activity.”
Montana doesn’t need another tax increase to solve their budget woes, they’ve increased health care spending year after year. Tax increases will likely beget more tax increases, which will drive businesses away and harm consumers. Montana should be looking for ways to shift their budget priorities to accommodate the needs of its citizens, rather than relying tax increases that will fail to bring in the needed revenue.
The state Legislature rejected an increase in tobacco taxes in 2017 and voters should do the same and reject I-185.
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Michi Iljazi of Alexandria, Virginia, is the director of government affairs for the American Conservative Union
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