Christie's E-Cigarette Tax Could Lead to Bigger Drop in Revenue for New Jersey

JERSEY CITY, New Jersey -- Cash-strapped New Jersey is leading the charge against e-cigarettes, with Governor Chris Christie and state legislators proposing high taxes that could propel sales into the black market and diminish the state's tax intake.

Fox News reports that the booming, currently still unregulated e-cigarette industry is enticing a number of states to propose new taxes to cover for the sales. While the health effects of e-cigarettes are still not fully known, the Centers for Disease Control and Prevention claim that e-cigarettes have “far fewer of the toxins found in smoke compared to traditional cigarettes," and many individuals suggest that they have been able to stop smoking cigarettes by switching to this nicotine-providing alternative. One study found that e-cigarettes are as effective as nicotine patches in helping smokers quit.

Nonetheless, some states want to regulate the product. Fox News's Barnini Chakraborty puts the number at "more than two dozen" states. Minnesota is currently the only state to tax e-cigarettes separately as its own distinctive product, and New Jersey hopes to be next. Governor Chris Christie, whose latest proposed budget caused a stir thanks to its record-breaking payments to government pensioners, proposed taxing e-cigarettes at the same rate as regular cigarettes. The tax, almost $3 extra per pack, would arguably help increase state revenue.

Opponents of the tax suggest, however, that such a tax would actually decrease the amount of money entering the state through taxes, at it would force smokers to buy e-cigarettes either in other states or the black market. A similar phenomenon has occurred with conventional cigarettes. Chakraborty reports that "as much as 40 percent of all cigarettes smoked in New Jersey were smuggled into the state illegally, resulting in a loss of more than $500 million in uncollected tax revenue each year." 

Lower tax advocates suggest that a more reasonable tax on cigarettes would provide the state with greater revenues, as it would give residents incentives to buy cigarettes through legal means. Instead, the state is proposing creating the same revenue gap with the booming e-cigarette industry.

A study released this year by the investment advisory group RegentAtlantic found that estate and property taxes in New Jersey had a similar effect as that which e-cigarette supporters claim this tax will have. Wealthy New Jerseyans moved out of the state in droves to avoid higher taxes, resulting in alarmingly low levels of state tax revenue rather than an increase. Economists have suggested that a tax cut would attract some of these old residents back into the state, increasing the tax revenue enough to begin to offset the state's expenses.

Revenue is at the core of any economic debate in New Jersey. Late last year, the credit rating company Moody's lowered the state's credit outlook on the same month that the state missed its most important revenue target at the end of the year. Moody's based their "negative" outlook on the lack of revenue entering the state. New Jersey has some of the most expensive government in the country and requires astronomical revenues to keep afloat, which it has failed to do for some years. A study from George Mason University's Mercatus Center also found the state to be the least economically solvent in the nation.

While New Jersey is not the only state proposing such a restriction on e-cigarettes, it is likely the state for whose economy such a tax will most matter. Other states, Fox News notes, that are suggesting limitations on the product are Washington state, where a tax failed to pass the legislature, and states that banned e-cigarette consumption in public, such as Utah, North Dakota, and Washington, D.C. The cities of Los Angeles and New York City have both banned e-cigarette consumption in public areas.


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