Maine:Cigarette tax shortfall burning hole in budget

Villiage Soup ^ | 9-20-07 | Victoria Wallack

[SheLion]

AUGUSTA (Sep 20): Cigarette taxes in Maine — eyed as a source of new revenue for the state and federal government — have come in short by about $800,000 a month, on average, since January, adding to an expected budget hole legislators will have to fill when they return next year.

From January through June, cigarette tax revenue was below budget by $5 million. Revenue was down another $850,000 in July — the start of the state’s fiscal year — and $600,000 in August.

No one is quite sure what is happening with sales in Maine, but it appears more people are either quitting, switching to lower-taxed tobacco products such as roll-your-own cigarettes, or shopping on the Internet or over the border because Maine’s cigarette tax is $2 a pack.

If the federal government raises its taxes on a pack to fund expanded health care for children, Maine could lose even more sales. The state is projecting that raising the federal tax from 39 cents to $1 will cost Maine about $5.5 million.

Health-care advocates say they would like to tax smoking out of existence, but that also would leave a $160 million hole in the budget — the amount currently budgeted for one year’s worth of cigarette taxes.

While revenue forecasters acknowledged the downward trend in state sales toward the end of the fiscal year that ended June 30, they did not adjust projections for the state’s new two-year budget that went into effect July 1.

“We didn’t do anything for the out-years because we wanted to see if that pattern was going to continue,” said Mike Allen, director of research for the Maine Revenue Service.

Allen now believes it will, and he predicted when the Revenue Forecasting Committee meets in November, “it’s likely they will be recommending to bring that revenue source down for this fiscal year.”

The Maine Revenue Service is also trying to figure out what’s going on, since the numbers in 2007 are not following a projection formula that in the past has been reliable.

Those projections are critical, since the state and the federal government use hikes in the cigarette tax to raise new revenue in times of budget shortages or to pay for new programs. Polls show that raising taxes on cigarettes is more palatable with the public because smoking is now viewed as a deadly vice.

Maine raised its cigarette tax by $1 a pack in 2005 to fill a budget hole, and Gov. John Baldacci proposed raising it another $1 earlier this year to do the same thing — a plan that failed largely due to Republican opposition to any new taxes.

Others have proposed the tax could be raised to help pay for the state’s subsidized Dirigo Health insurance program going forward.

Congress also is looking at raising the 39-cent federal tax on cigarettes to help pay for an expansion of Medicaid that gives health insurance to lower-income children. A Senate proposal would raise it 61 cents to $1. The House has proposed raising it by 45 cents.

Allen said the rule of thumb has been that for every $1 the cigarette tax is raised, there is a corresponding loss of 12 percent in sales. That’s in addition to the 1 percent drop figured in annually because aggressive state and national anti-smoking campaigns are getting people to quit.

“That worked pretty well until January of '07 [when cigarette tax revenue started to drop unexpectedly]," Allen said. The trick now is figuring out what assumptions have changed.

“When we estimated a 12 percent decline ... that captures a lot of different kind of behavior,” he said. “People could be quitting, cutting back, switching to other types of tobacco. People could be going to New Hampshire. People could be going to the Internet.”

The Maine Revenue Service is working on developing a more accurate formula at the same time it goes after tax cheats — with a new focus on Internet sales.

Errol Dearborn, director of the compliance division for Maine Revenue, said he’s collected $950,000 in owed taxes in the last two-and-a-half years from people who have purchased cigarettes from out-of-state vendors, largely over the Internet.

Federal law has long required so-called remote sellers to report their sales to states so they may collect relevant taxes from the buyers, but the law was initially aimed at mail order. With the advent of the Internet, those sales have increased along with lost tax revenue.

Dearborn said 10 remote sellers have reported on their own to the state. He suspects there are many times more than that in operation. “These things [retailers] pop up and go out of business quicker than you can blink,” he said.

To catch them, his office makes a buy and then demands the sales records for all cigarettes sold in Maine. It then contacts the buyers and requires they pay their taxes.

Those companies that refuse to comply are turned over to the Attorney General’s Office, which can compel compliance or ban a company from doing business in Maine. Dearborn said there are currently eight cases pending with the state’s attorneys.

He said the state’s efforts at recovering lost taxes have been helped by a federal crackdown on Internet vendors because of their criminal connections.

“The federal government being concerned in this has helped all the states,” Dearborn said. “Some of these sellers have ties to organized crime or terrorist organizations. They make lots of money.”

[SheLion]

Can we start screaming now???!!!

The dirty crud running the great state of Maine can NOT have this both ways.  They scream they want a TOBACCO FREE MAINE, but when people do quit or go elsewhere for cheaper cigarettes, now the filthy Maine lawmakers are scratching their heads wondering "Where or where has our cigarette taxes gone?"

Can we really believe this crap?????

The state screams they want us to live in a smoke free state, now they are crying the blues because they have no money left from smokers tax dollars to start up more little pet programs.

They all make me sick!

[SheLion]

Let's all have a good laugh OR a good cry!

How STUPID do they think we are?!

[Da Coyote]

Ah, libs in action. One will never go broke underestimating their inability to do anything correctly.

Liberalism - er progressivism - is like a box of chocolates...you never know what you’re gonna get, but you’re sture it’ll be mega-stupid.

[2banana]

Not to mention the black market of cigarettes which is booming....

[NonValueAdded]

LOL And Mass. is bemoaning a lottery shortfall. Seems the lawmakers jacked up the anticipated revenue number to cover a lot of spending. Of course, without a sound basis, the revenue goal was not hit, just as the lottery staff predicted.

Now look at that SCHIP (or is it T?) plan based on 65 cents a pack. I wonder if the revenue projection is based on a constant smoking rate, not taking into account that at some point the cost will force more and more to quit? Doesn't matter, the real plan is to get the entitlement on the books and sucking at the gubermint teat.

[50sDad]

Democrats operate in a magic kingdom where to increase income you just raise taxes.

Republicans (should) realize that if you raise taxes on a non-essential, the demand curve shifts as some people just decide it is too expensive a bad habit.

[RC2]

We’ll find out when they raise the tax on milk to cover their spending habits. Anyone could have figured out that the smoke tax wouldn’t last. Dumb politicians don’t last either. That’s why we need to get rid of some of these guys.

[rlmorel]

It’s called killing the goose that laid the golden egg.

For liberals, history begins 5 minutes ago, so they would have no idea of what I mean by this.

[Cobra64]

Guess they never heard of the black market either. Montreal taxed the hell out of cigs in the early 1990s when I was up there on business. Demand was met by U.S. supply.

[AU72]

But they claimed that the government would save tons of money with a more healthy population not smoking!

[Virginia Ridgerunner]

Killing the golden goose! Looking at their formula and projections here, it appears that the idiots never heard about the law of diminishing returns.

[em2vn]

I smell a great black market in the making. Maybe the Kennedys can make a second fortune by smuggling cigarettes into the U.S. from Canada like Joe did with liquor during prohibition.

[ichabod1]

So everybody else will have to pitch in to fill the hole the smokers won’t fill. Budgets never go down.

[pissant]

Thank God for the Indians. I hope every Maine smoker is gettign their cigs from them and depriving the idiots in charge of their confiscatory taxes.

[N3WBI3]

Lets not forget these taxes were supposed to offset the ‘cost to society’ for smoking.. Well if fewer are smoking then those cost should go down..

[Old North State]

This is right up there with the NYT lamenting that the prison population was rising as crime was going down.

[geezerwheezer]

It seems as though the Maine tax authorities had an extra cup of stupid to drink along with their tax poison. Those dudes are posers only. What a pantload of idiocy.

[TomGuy]

And Congress is now wanting to fund child health insurance with additional cigarette taxes for Washington DC.

The governments at various levels have about drained tobacco of the taxes they can get. There is such a thing as the Law of Diminishing Returns. They have about taxed tobacco into that realm.

Not to worry, governments are good at finding new sources/subject to tax.

[goldstategop]

Liberals are stupid. They want to eradicate smoking and at the same time they want smokers to pay through the nose for their expensive entitlement programs. Instead, they're discovering the results of their contradictory policies: budget deficits.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

[spyone]

I’ve got a good idea. Let’s raise the tax more to cover this shortfall.