February 20, 2017
On behalf of the American Conservative Union and its many supporters in Oklahoma, we urge you to oppose HB 1841, which would increase taxes by 145 percent by imposing an additional $1.50 per pack tax on cigarettes. It would be a mistake to increase taxes during such a tough economic time for Oklahoma. This tax increase benefits a few special interests, but will have unintended consequences.
So-called “sin taxes” are always an inviting target for governments looking for revenue but this tax increase would actually hurt the people that can least afford it. Studies show that higher cigarette taxes disproportionally hit those with lower incomes. Research by the Tax Foundation has shown cigarette tax increases do not result in the revenues expected while increasing the use of black market sources or the purchase of cigarettes in lower tax neighboring states. Of course, lower than projected revenues also leads to calls for higher taxes in other areas.
Right now, Oklahoma’s cigarette tax is moderate. Once Oklahoma’s tax is sharply increased, this will result in a thriving black market for cigarettes from Oklahoma’s lower tax neighbors. Michael LaFaive of the Mackinac Center for Public Policy, using the Center’s statistical modeling, found that the proposed tax increase will increase smuggled cigarettes into Oklahoma by 700 percent and result in the portion of smuggled cigarettes in Oklahoma growing from 2.4 percent to 19.2 percent.
This tax is also an indirect tax on small business. According to the National Association of Convenience Stores, cigarettes account for about 38 percent of in-store sales—yet we know that when people buy cigarettes they also make other purchases. This tax will result in lost business as customers seek less expensive cigarettes across state lines or in Native-American owned stores that sell cigarettes. Native-American owned stores that sell cigarettes in Oklahoma already have an unfair advantage and receive a state government subsidy of $55 million a year for cigarettes sold in Oklahoma. This tax increase would significantly deter business from non-Native-American owned stores in Oklahoma and significantly grow the subsidy as it increases based on the increase of sales of cigarettes at Native-American owned stores.
Also, lawmakers should be deeply concerned that such a tax increase relieves state agencies of their responsibility to better operate and decrease dependency on their programs. Some of the same state agencies advocating for the tax increase, such as the Oklahoma Health Care Authority, has spent the last several years fighting the will of the legislature and spending their energies and efforts trying to get lawmakers to implement Obamacare’s Medicaid expansion. They have opposed working to implement Medicaid reforms and reforms to make sure that only those truly eligible for the program are enrolled. Administrators need to put as much effort into reforming programs as they have into funding or tax increase efforts.
The major tax increase called for in this bill is the wrong way to go for many reasons. Please oppose HB 1841.
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