Local legislators say cigarette tax is a ‘regressive’ measure

Published 9:18 am Monday, February 18, 2013

Jan Heim, owner of Ankeny’s Mini Mart, isn’t losing sleep over a potential statewide hike in cigarette taxes. She expects Austin smokers to continue buying cigarettes regularly.

“They say once it reaches $5, they’re quitting,” Heim said. “People say they’re going to quit, but they don’t.”

A bill introduced Thursday by Rep. Ann Lenczewski, DFL-Bloomington, proposed raising cigarette taxes by $1.60 per pack, in contrast to the 94 cents per pack Gov. Mark Dayton suggested in January. The increase would generate an estimated $441 million for the state over a span of two years. Local cigarette retailers anticipate the change would do little harm to their business if enacted.

While customers complain about higher cigarette taxes and consequently more money coming out of their pocket, Heim said she doesn’t expect there will be any dip in business if the excise tax rises.

“I sell a lot of cigarettes,” she said.

Heim added she sees people of all ages, 18 and older, coming to purchase cigarettes.

Deterring young people from smoking is one of the goals the tax hike’s proponents have, however. Supporters also say it would result in lower treatment costs for smoking-related illnesses when some smokers decide to quit to save money, and would also raise revenue for the state.

Austin resident Josh Lowe, a smoker, said he is not concerned about the bill passing.

“I don’t think it would affect me,” said Austin resident Josh Lowe. “I’m working on quitting right now.”

While his decision to quit doesn’t stem from high prices, Lowe said dodging a potential cost increase would be an added benefit. While he used to average a pack a day, he is now down to five packs a week.

“They’re high enough the way they are,” Lowe said. “It’s like anything else; it keeps getting more expensive.”

Opponents of the tax increase, however, said it could hurt lower-income people disproportionately. They also point to the possibility of an illegal smuggling problem arising.

Sen. Dan Sparks, DFL-Austin, called the measure a “regressive tax” which only affected a portion of the population, and hesitated to support it.

“When you do these sin taxes, it affects a certain portion of the population, so we’ll have to see as [the bill] goes forward,” Sparks said. “I understand that there would be some health benefits … but I think there’s other, fairer taxes to support.”

Rep. Jeanne Poppe, DFL-Austin, said she is open to further discussion on the bill and isn’t swayed to a decision yet. While she sees the benefits of raising the cigarette tax to discourage teens and young adults from buying and using tobacco, she said the tax unfairly burdens smokers.

“Is it a fair tax? No,” Poppe said.

Another concern opponents have is that higher taxes could hurt retailers in border towns, where a short drive would allow Minnesotans to find lower prices on the same brands.

“They’ll just go across the border,” said Jim Baldus, owner of Jim’s Marketplace Foods. Many people did exactly that for a while last time the cigarette tax jumped, he added, but have since returned to local retailers and made compromises.

“They’ll trade down to cheaper brands,” he said.

Baldus estimated Jim’s Marketplace goes through thousands of packs of cigarettes a week, but selling them yields relatively little profit. If there were to be a big cut back in cigarette sales, it would make little impact on the business.

Right now, the excise tax on cigarettes is $1.23. It would jump to $2.83 per pack if the bill were to pass, taking Minnesota’s cigarette tax above those of neighboring states. The nearest competitor would be Wisconsin, which would charge about 30 cents less.

The difference in the end cost to a consumer, however, is a bit more complicated. It would depend on state and local sales taxes included in with that particular store.

Baldus said he expects a cigarette tax hike to take place, but doubts it will be the full $1.60 per pack proposed by Lenczewski. For now, the bill is being held over in the House Taxes Committee for consideration later in the legislative session.

— Trey Mewes and McClatchy Tribune Information Services contributed to this report.