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April 09. 2013 8:55PM

Cigarette tax increase seen as deterrent to youth smoking

CONCORD - A 20 cents-a-pack cigarette tax hike, passed by the House last month, was praised during a Senate committee hearing Tuesday as a step toward lowering the state's high rate of youth smoking.

But equally vocal were the state grocers association and several convenience store owners and groups warning of potentially dire consequences for their businesses and employees if lawmakers allow the tax to increase.

Despite the fact that even with the increase, the price of a pack of cigarettes in New Hampshire would still be far lower than neighboring states, opponents warned that the narrowed margin, coupled with the high price of gasoline, will keep out of staters from driving to New Hampshire border stores that heavily rely on cigarette sales.

The Senate Ways and Means committee took nearly two hours of testimony on House Bill 659, which passed the House 193-167 on March 20.

The bill seeks to counter a 10 cents cut in the cigarette tax enacted in the last legislative session. That law says that if certain revenue projections are not met, the cut would be reversed on July 1.

Gov. Maggie Hassan wanted to add a 20 cents hike on top of that, for a total of 30 cents, but the House cut the increase to a total of 20 cents, from $1.68 to $1.88-a-pack.

It faces a rocky road in the Senate, where Republicans hold a 13-11 advantage.

Still, said, Ways and Means Vice Chairman Lou D'Allesandro, a Manchester Democrat, it is not out of the question that the bill will pass the Senate.

D'Allesandro said that he supports the increase because of potential "health benefits and we're looking to reduce health care costs."

Bill sponsor Rep. Cindy Rosenwald, D-Nashua, told the senators that raising the cigarette tax "is both good public health and fiscal policy. On the revenue side, we look at an increase of almost $10 million per year" with every 10-cent increase in the tax.

On the public health side, she said, "tobacco-related illness is "incredibly expensive.

"We should be doing everything we can to discourage smoking," Rosenwald said.

Committee chairman Sen. Bob Odell, R-Lempster, questioned whether small increases truly influence people's behavior when it comes to smoking.

But Rep. Susan Almy, D-Lebanon, chair of the House Ways and Means Committee said that even with the tax hike, New Hampshire cigarette prices would still be significantly lower than other states.

The hearing saw business owners and their representatives warn that their businesses will suffer if the tax increases, while health advocates pressed the benefits of making tobacco products more difficult to purchase, especially for young people.

Peter Potenza, owner of the Rose Bell Motor Mart in Concord, said a 20 cents hike "will potentially destroy my small business."

He said tobacco products are 22 percent of his gross sales but only 10 percent of revenue because the profit margin is so small.

He said his store is surrounded on Concord's Main Street by "corporate stores," which are far more able to absorb a tax hike without passing all of it on to consumers. He said he cannot do that, and, Potenza said, "because tobacco buyers are going to smoke no matter what, they'll go to the corporate stores where the prices will be cheaper."

"I'll have to pass on 80 percent" of the increase to customers, said Potenza, and "I'll be on the long list of small business owners who go out of business because government got in my way."

Scott Colby, executive vice president of the New Hampshire Medical Society, said smoking "basically costs the state $55 million a year in medical costs."

While cigarette tax hike opponents say it is a regressive tax that hurts the poor the most, Colby said low-income Granite staters disproportionately suffer from smoking-related illnesses because they have a higher rate of smoking.

Colby said, for instance, that 57 percent of New Hampshire Medicaid beneficiaries smoke.

He said the medical society proposed a 68 cents increase in the tax, which, he said, has been shown to be an effective deterrent.

"Unless you make a significant increase, you're not going to incentivize people to stop," he said.

Marie Mulroy, president of Tobacco-Free New Hampshire, a coalition of 18 health associations, hospitals and activist groups, said New Hampshire does not fund youth tobacco prevention programs and overall ranks 50th among states on tobacco prevention.

She said she hoped that some of the increase will fund such programs.

But John Dumais, president of the New Hampshire Grocers Association, said that with grocers working on "a slim net profit" of "one penny for every dollar of sales, the only ones who are realizing large profit gains"from higher cigarette taxes "are the federal and state governments."

Dumais said a tax hike also hits the "floor tax," which is levied on unsold cigarette inventory.

"A 10-cent tax increase means a 10-cent surcharge on already-paid inventory," he said. "For many small store retailers who have high volume tobacco sales, this can equal over $10,000 in immediate additional expense."

Dumais also noted that cigarette buyers also often purchase products such as beer, lottery tickets, gasoline and sandwiches.

"Our argument has always been that while the Legislature considers a tax solely on the revenue it generates, that thinking ignores the reality of how an increase, or decrease, affects other state revenues," Dumais said.

Cindy Gagnon, area sales manager for Cumberland Farms, said the chain has 47 stores in the state with about 600 employees and has recently invested in newly remodeled stores.

She said the proposed increase "only reinforces the increasing tax environment in New Hampshire and gives residents more reason to look elsewhere for buying cigarettes rather than their local store.

"As we have seen with other states that have increased their excise tax, customers look for alternatives to purchase cheaper cigarettes, such as the Internet," said Gagnon.

Steve Ryan, executive director of the New England Convenience Store Association, said the group, with 850 stores employing more than 10,000 people in New Hampshire, would be hurt by the hike.

Greg Moore, state director of the issues advocacy group Americans for Prosperity, said the hike would be damaging to the "New Hampshire advantage."

Moore said that although the cost of cigarettes would still be lower than neighboring states even with the 10-cent increase, "the disparity between the price in the states next to us is what determines the distance, or pull, from which consumers from other states will come to buy tobacco products."

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