Taxes

Lawmakers and the governor were unable to resist the urge to tax

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In their first year at the helm of state government, Governor Janet Mills and the 129th Maine Legislature managed to increase state government spending by over 10 percent and ban a plethora of legal products for the “good of society.” One of the most important questions after the legislative session is whether or not Governor Mills lived up to her pledge not to raise taxes on Mainers in her first two years. While she was able to tame legislative Democrats and dodge individual income tax increases, the governor did approve a tax increase on a small segment of Mainers. 

On July 2nd, Governor Mills signed LD 1028, a bill that increased the tax on cigars, pipe tobacco, and other tobacco intended for smoking, from 20 percent to 43 percent of the wholesale sales price. The wholesale sales price is the amount “for which a manufacturer sells tobacco products to a distributor.” This tax will undoubtedly be passed onto consumers of tobacco products. 

The new law raises taxes on smoking tobacco and smokeless tobacco products equivalent to the rates charged on cigarettes. In other words, if the tax rate on cigarettes increases at a later date, then the rate on other smoking and smokeless tobacco products will increase as well. 

While this tax increase will not affect all Mainers (approximately 17 percent of Mainers smoke), it will certainly increase prices for people who use tobacco products. Taxes are levied on harmful products are called “sin taxes,” and proponents of these taxes believe the higher rate will discourage the use of harmful products, effectively pricing individuals out of the market. 

However, research from the National Bureau of Economic Research suggests that cigarette taxes, at best, have a small, negative impact on smoking. In other words, “adult smoking is largely unaffected by taxes.” 

In addition to their inability to dictate consumer behavior, sin-taxes are highly regressive. A person who uses tobacco and lives in poverty spends a larger portion of their net income on these products than those with greater earnings. While this might deter some tobacco users who live in or near poverty, or are moderate users, others will continue to spend more of their hard-earned dollars on the tax increase. These individuals will still be in poverty, have less money in their pockets and continue to use tobacco, as unfortunate as it may be. 

The tax increase outlined in LD 1028 is projected to generate more than $9.5 million in revenue every fiscal year after 2019. Most of this revenue is going to be used for tobacco cessation efforts for MaineCare members. Mainly, this tax increase was an excuse to increase revenue for state government over the biennium. 

While individuals should be encouraged to quit smoking, it does not need to be done through the imposition of new taxes or fees. As outlined, these attempts at social engineering serve almost no purpose except to raise revenue and give lawmakers something to boast about during their reelection bids. By signing LD 1028, Governor Mills went back on her promise to not raise taxes on Mainers; and while its impact isn’t as far-reaching as it could have been, it is a tax increase nonetheless.

About Adam Crepeau

Adam Crepeau serves as a policy analyst at The Maine Heritage Policy Center. He can be reached at acrepeau@mainepolicy.org.

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