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Guest column: Measure 4 is bad tax policy

By Staff | Sep 2, 2016

I read Lloyd Omdahl’s opinion column “Cigarette tax initiated to bypass stubborn legislature” regarding Measure 4 on our ballot this November. I’m writing to point out several important aspects of Measure 4 that he did not discuss.

It’s a poorly-written measure and includes nine pages of fine print and dozens of complicated changes to North Dakota law. And only four sentences describe what types of programs the funds will actually be used for. In plain English, it’s a blank check for bureaucrats and political insiders to spend new tax money. This is not the North Dakota way of managing taxpayer money.

In addition, the amount of money projected to be spent from this huge tax increase is not small change – over $50 million a year to a variety of programs with virtually no accountability to taxpayers to make sure the funds are not wasted. Plus the spending would be locked in for seven years, except by a two-thirds vote of the Legislature, even if there is waste, fraud, or abuse.

This measure is a 400 percent cigarette tax increase – the largest such tax increase in North Dakota history – and doubles the tax on other tobacco from 28 percent to 56 percent while adding a brand new e-vapor tax at the same rate.

One of the reasons cited by supporters of the measure is that the funds will be used for tobacco prevention and cessation. But what supporters aren’t telling you is that North Dakota already ranks number one in the country for allocating money to tobacco prevention (spending $9.5 million per year). On top of that, the state’s Tobacco Prevention and Control Committee currently has a $45 million surplus to spend on anti-tobacco programs moving forward. We simply don’t need this new tax increase.

Another argument supporters talk about is money for veterans services. While we all want to help our veterans, this measure is flawed and forces a small percentage of North Dakota taxpayers to foot the bill. We all benefit from the sacrifices of our veterans, and all of us should be paying our fair share to help them.

For businesses in North Dakota, this measure creates a number of problems which supporters are not talking about either. As President of the North Dakota Petroleum Marketers Association, I know first-hand what this means for retail business owners in our state, since they are my members. But as a business owner and taxpayer myself, I am also concerned: nothing in Measure 4 stops bureaucrats from spending this new tax money outside of North Dakota. If we are going to raise over $50 million in new taxes on North Dakotans, the money should be spent here!

Measure 4 will hurt local businesses and my fellow retailers. Most of us have been to our local retail store, and many have been run by local families for generations. They carry a variety of products and the targeted tax in Measure 4 hits their business hard. Increasing the excise tax could hurt legitimate retailers by encouraging adult smokers to shift purchase of their products from sources where taxes are lower or can be avoided altogether, such as across state lines or to other outlets, such as the Internet or Native American reservations. This would negatively affect North Dakota’s 1,190 retailers. For example, a carton of cigarettes could be $8.93 cheaper in Montana and substantially more if purchases were made from outlets where taxes may not be collected. This could result in lost jobs, higher unemployment, and some small businesses closing. Though losses would become even more pronounced given that tobacco products are often purchased with other items, such as food and beverages.

The bottom line is that these new and higher taxes will severely damage retailers and their employees by forcing them to compete on an unfair and un-level playing field.

The other item not discussed is the issue of fairness of targeted taxes in general, and not just on local retailers. For the average adult smoker in North Dakota, this tax would increase the annual government burden from $882 to $1,573. Yet one of the four lines on spending shows that just 5 percent of the new money raised “is appropriated to the department of health for the support of chronic disease, detection, prevention, treatment, and control”. That doesn’t even specify tobacco, and neither does the spending of the other 95 percent. How can they claim that this is all about stopping smoking, when they only wrote 5 percent into the language that likely won’t be changed for seven years?

There’s also the problem of tax fairness. Cigarette excise taxes are regressive because they negatively affect hard-working adult smokers. Based on data from the Centers for Disease Control and Prevention, 32 percent of adults in North Dakota who earn less than $15,000 are smokers, whereas only 15.5 percent of adults who earn $50,000 or more are smokers. Raising taxes will unfairly further burden hard-working adult smokers for new broad government spending.

The language on funding created by this tax increase also creates problems for all of us in North Dakota.

The new funds are locked in for seven years unless the legislature takes the unlikely step of changing it with a two-thirds vote. Beyond that, it locks in the existing funding the state already provides for many of the same groups. That is not what our initiative process was intended for and takes away the legislature’s ability to address other important issues like our education system and roads.

It also uses a declining revenue sources to support our veterans. Close to home, Wisconsin raised its cigarette tax by 75 cents in 2009 and its revenue projection fell short by 39 percent. This should come as no surprise. If adult consumers shift purchases to other states, the government will collect less revenue than expected from the tax increase. If we are to create state programs to support our veterans, then it should be with sustainable revenues, not declining ones.

Another reason these types of taxes lead to revenue declines is they can also provide incentives for smuggling and other contraband activities, resulting in lost tax revenues. In 2014, the Bureau of Alcohol, Tobacco, Firearms, and Explosives said “$7 billion to $10 billion in state and federal tax revenue is lost each year because of [cigarette] smuggling, up from $5 billion a few years ago.”

When you add it all up, this proposal is poorly written, is bad tax policy and simply isn’t how we should manage tax money. On behalf of retailers, their families and their employees all across North Dakota, I ask you to Vote NO on Measure 4 this November.

Rud is the president of the Petroleum Marketers Association of America Executive Committee, a commission member of EmPower North Dakota, serves on the North Dakota Lottery Advisory Commission, and is the president of the North Dakota Retail Association.

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