Michael w. thompson column massive cigarette tax increase will have predictable outcome their opinion richmond.com

Following the recent tax increase in Petersburg, cigarette sales in the city plummeted while Prince George County sales increased by nearly 20 percent. Similarly, after a recent increase in Philadelphia, sales in that city fell by more than 50 percent while three surrounding counties saw their volume increase by more than 24 percent — and this during a time of nationwide decline in cigarette purchases.

Proponents have regularly cited “success stories” such as Virginia Beach and Norfolk. These cities are simply not situated similarly to Richmond as they border other high-tax jurisdictions, providing a buffer against purchasers fleeing those cities.

Perhaps more importantly, cities such as Virginia Beach are engaged in an endless cycle of increasing cigarette taxes, which leads to more consumers taking their business out of that city, which leads to still more taxes just to maintain flat revenue. It is considering its fifth cigarette tax increase just in the past 10 years. Since 2006, Virginia Beach has increased its tax rate by 50 percent to gain less than 1 percent in revenue. This water-from-a-stone approach treats local businesses and adult smokers like bank teller machines. Richmond should run from this model, not seek to emulate it.

Moreover, even without these policies, cigarette taxes are a declining and fleeting revenue source. As the City of Norfolk put it in a recent budget document, “revenue generated from these rate increases tends to be short-lived.” Clearly, the important needs facing Richmond, including school maintenance, deserve better answers.

Richmond’s small-business owners also deserve better answers. In recent City Council hearings, local retailers shared concerns about how this tax would harm their businesses. These concerns have, at times, been dismissed as either not credible or too similar to objections raised during the meals tax debate, as if all business is identical. If anything, these testimonies understate the potential business harm.

Indeed, City Council’s staff certainly views the business harm from the meals and cigarette taxes differently. Based on the city’s own revenue estimates, policymakers expect continued growth in prepared food sales in the city, even following the recent meals tax increase, compared with a massive collapse in cigarette sales in the city if the cigarette tax is implemented.

Without saying it explicitly, the city is projecting millions of transactions leaving Richmond stores. The business harm adds up quickly. When your neighbors buy cigarettes at the local convenience store, they frequently purchase many other items, including gas and snacks. Many adult smokers will likely take all of these purchases outside of the city, compounding the negative impact on local businesses.

When considering any tax, Richmond’s voters expect the council to consider if “the juice is worth the squeeze.” The cigarette tax offers a potential short-term bump of a declining revenue source that does little to solve the long-term funding needs of the city. This dramatic tax increase could cost local small businesses tens of millions of dollars in lost revenue, and it would be an unfair burden on those in the lowest income brackets who buy the largest share of cigarettes. This is one tax Richmond should avoid.