Printer Friendly


 COLORADO SPRINGS, Aug. 5 /PRNewswire/ -- A new five-year study reveals that states with higher sales and excise tax rates on cigarettes, alcoholic beverages and gasoline lose millions of dollars and thousands of jobs to neighboring states with lower tax rates. These losses are a result of residents who cross borders to avoid paying the higher taxes in their home states.
 The study was commissioned by the American Legislative Exchange Council (ALEC) and conducted by Price Waterhouse. The study compared the economic effects of combined state sales and excise tax rates for each of the six New England states from 1987 to 1991. It will be released at ALEC's annual meeting which begins here today.
 "For the second time, our studies documented what everyone has always believed to be true -- that high state sales and excise taxes are counter productive," said Samuel A. Brunelli, ALEC's executive director. A similar study for the years of 1977-1988 was conducted by ALEC two years ago.
 Significant Impact from Cigarette Taxes
 According to the study, the combined sales and excise tax rates on cigarettes have significant impact on state economies. The study showed that the direct impact from cigarette sales gains or losses due to the varying tax rates in New England-area states divided the region into two distinct categories -- winners and losers -- as it related to state tax revenue and jobs. Cigarettes are the prime example for this region-wide study because of the available tax data on them.
 Using this data, the study showed that during the five year period of the study Massachusetts, Connecticut and Maine were the tax revenue and job losers overall because of their high cigarette tax rates, while New Hampshire, Rhode Island and Vermont were the overall winners because of lower rates.
 Combined, the losers suffered erosion of $107.6 million in tax revenues and 3,037 jobs. The winners gained $65.7 million in tax revenues and 3,247 jobs.
 However, the study also showed that as cigarette tax rates increased in Rhode Island during the study period, tax revenues and jobs actually declined during 1991. If last year's trend continues, it could eventually put the state in the losing category overall. By contrast, because of significant cigarette tax increases in three of its neighboring states, Massachusetts' tax revenue and employment increased during 1991. If last year's trend continues, it could eventually make the state an overall revenue and job winner.
 For instance, Maine, which levies a combined 41-cents-per-pack sales and excise tax on cigarettes, lost $24 million in state tax revenues as a result of a $94.1 million loss in retail sales revenues on that product over the five-year span. These losses resulted from residents crossing the border into New Hampshire, which has a 25 cents-a-pack excise tax and no sales tax. As a result of the sales losses, the state lost 776 jobs representing a loss of $8 million in retail wages over the same period.
 Neighboring New Hampshire, meanwhile, because of its lower tax rate, also benefited from cigarette sales to Massachusetts residents. In fact, combined cross-border sales gains from both states added $55.7 million in state tax revenues as a result of a $361 million increase in retail sales revenues on that product over the five-year span. As a result of the sales gains, the state added 3,046 jobs representing an increase of $31.5 million in retail wages over the same period. However, the study shows that New Hampshire's tax revenue and job benefits are eroding as it added 4 cents-a-pack to its excise tax rate in 1991.
 Vermont also gained revenue and jobs from cross-border sales to Massachusetts residents because of its 23 cents-a-pack tax. Sales tax revenue increased a total of $7.5 million on an additional $47.3 million in cigarette sales during the five year period. That added a total of 377 jobs representing $4.3 million in retail sales wages from 1987 to 1991.
 When it comes to Massachusetts, that state lost a total of $33.9 million in state tax revenue because of declining cigarette sales from 1987 to 1990. However, it showed a $6.2 million increase in 1991 because both Connecticut and Rhode Island increased their cigarette tax rates; Connecticut raised its tax to 54 cents-a-pack in 1989 and Rhode Island to 49 cents-a-pack in 1991.
 These tax revenue gains resulted from retail sales gains of $29.8 million in 1991, which generated 235 new jobs and $2.8 million retail sales wages.
 "Even though Massachusetts suffered a $27.7 million net loss of sales revenue during the study period, its gains during the last year clearly demonstrate the favorable impact that lower excise and sales taxes have on state economies when their rates are lower than neighboring states," said John E. Berthoud, ALEC's director for state and fiscal policy.
 He also pointed out the study showed Rhode Island had revenue and employment gains from 1987 to 1990, but showed losses in both categories in 1991 because of its tax increases.
 In fact, from 1987 to 1990, the state had a total of $10.1 million in gains in state tax revenue on an increase of $47.9 million in retail sales revenue. This added 393 jobs with wages totaling $4.5 million during the four year period.
 Conversely, when the state increased its cigarette tax rate, tax revenues and jobs declined. In 1991, tax revenue losses on cigarettes totaled $7.6 million as retail sales dropped by $26.4 million. That caused a drop of 192 jobs and a loss of $2.4 million in retail wages.
 Connecticut, with the highest combined sales and excise tax on cigarettes in the region, was also the biggest loser. It lost a total of $83.6 million in state tax revenue and $360.2 million in retail sales during the five year period of the study as residents crossed borders into Massachusetts and Rhode Island to avoid paying the per-pack tax. As a result, the state lost 2,261 jobs representing $27.1 million in retail wages.
 "These losses and gains are significant when considering they are largely the result of higher or lower prices due to excise taxes," Berthoud said.
 Distilled Spirits and Gasoline
 Tax rates on distilled spirits also continues to play a role in cross border activity. The study reviewed liquor prices in each state. New Hampshire, with its significantly lower tax burden than other states in the region, is "likely gaining sales revenue and employment due to cross-border liquor activity with neighboring states," according to the report.
 During the five-year survey period, New Hampshire realized a sales increase of more than 9.6 million gallons. New Hampshire has no excise tax on distilled spirits, but sells these beverages through state-run stores, with all profits going to the state. Therefore, sales tax revenue gains could not be calculated for this study.
 Based on the increase of sales, the state gained a total of 1,424 jobs and nearly $13 million in retail wages.
 When it comes to gasoline, with only a 5-cents-per-gallon excise tax rate differential between the highest and lowest-tax states in the region, there is only modest motivation for cross-border activity. The study does, however, indicate that "some level of cross border gasoline activity does occur." The following two groups of consumers can be expected to take advantage of state excise tax differentials on gasoline:
 -- Consumers who regularly participate in cross border
 activity by traveling across state lines to avoid
 excise and sales taxes on other goods;
 -- Interstate commuters who are aware of price
 differentials and can conveniently purchase gasoline
 while in the other state.
 "It's especially true in today's economy that consumers are looking to save money by avoiding high taxes on products they regularly buy. These figures show that neighboring states with more favorable sales and excise tax rates benefit," said Berthoud.
 "This is just the latest piece of evidence that high levels of taxation have a dramatic negative effect on state economies. In May, ALEC released 'The Impact of State and Local Taxes on Economic Growth,' which showed the ten states that lowered their tax burdens during the 80s grew at twice the rate as the ten states with the highest increases. Based on these studies, it is clear state legislators should know the effects of cross-border sales activity caused by sales and excise tax increases. States have a real opportunity to gain revenue, business and jobs by keeping these tax rates low," Brunelli concluded.
 The American Legislative Exchange Council is the nation's largest bipartisan, voluntary membership organization of state legislators, with 2,400 members throughout all 50 states. ALEC is dedicated to developing and advancing policies which expand free markets, promote economic growth, limit government and preserve individual liberty. ALEC is classified by the Internal Revenue Service as a 501(c)(3) non-profit public policy and educational organization, and governed by a 21-member board of directors of state legislators.
 -0- 8/5/92
 /CONTACT: Noel Card of ALEC, 719-471-6403 or 4 (Aug. 5-Aug. 9), or 202-547-4646 (after Aug. 9), or Karen Arena or Audrey Adlam of Burson-Marsteller, 212-614-4224 or 5035, for ALEC/ CO: American Legislative Exchange Council ST: Colorado IN: FIN SU: ECO

PS -- NY031 -- 7030 08/05/92 10:49 EDT
COPYRIGHT 1992 PR Newswire Association LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:PR Newswire
Date:Aug 5, 1992

Related Articles
Increase the Tax, Reduce the Demand.
Tax Profiling of Adult Smokers in New York City.
Majority of House signs on for beer tax rollback.
Lorillard Launches Ad Campaign Targeting Cigarette Excise Taxes; 'No Tax ... No Crime' Initiative Highlights NYC Problems.
RTI International Study Finds That Cigarette Tax Increases Reliably Generate State Revenues.
Equal Cigarette-Tax Collection in New York State Would Net 2,000 More Jobs, Boost Taxable Wages By $60 Million, says FACT Alliance; In era of...

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters