Iowa governor Chet Culver is basing a lot of the spending he proposed in his budget outline this week on revenues from a dollar-a-pack increase in the state cigarette tax, but a Midwestern economist says border-town lawmakers uneasy about the prospect have reason to be concerned. Economics Professor Ernie Goss says if the tax hike is passed, those stores will see a dropoff in more than just their cigarette sales.
"When somebody comes in to buy cigarettes, they also buy other items in your retail establishment," says Goss. So not only do you lose cigarette sales, you lose sales of other retail items, and he says it could be "quite significant" for those retailers. "As you raise the taxes, you get fewer and fewer consumers and the revenue base goes away."
But Professor Goss says there’s also a likelihood that some will start driving across the border with "contraband" cigarettes. Those are cigarettes on which people haven’t paid the tax. Goss says you’ll get "cross-border" impacts, where people from Council Bluffs will drive to Omaha to buy their cigarettes. And finally, he says, you have some who will actually quit smoking.
Goss says the tax increase probably won’t bring in as much revenue as expected for the Hawkeye State. He says if Governor Chet Culver’s plan is approved, it could mean a jump in business for Nebraska retailers near the Iowa border. Nebraska’s cigarette tax right now is 64-cents a pack