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Pennsylvania House of Representatives
https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20190&cosponId=27600
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House of Representatives
Session of 2019 - 2020 Regular Session

MEMORANDUM

Posted: January 10, 2019 10:08 AM
From: Representative Seth M. Grove
To: All House members
Subject: Local Cigarette Tax Elimination (Former House Bill 403)
 
Under Act 131 of 2014, the General Assembly gave the City of the Philadelphia the authority to raise its cigarette tax by $2.00 per pack. It was assumed the tax increase, during its first full year, would generate between $70 million and $90 million. However, after the first full year of enactment, this tax failed to generate expected revenue, bringing only $58.8 million for the Philadelphia School District. At $58.8 million in generated revenue, the tax missed the minimum estimate by 16%.

Due to the fact cigarette taxes are not a stable source of revenue and have historically deteriorated over time, the General Assembly passed a provision within Act 84 of 2016 to assist Philadelphia Schools. This provision guarantees the state will provide funds to the school district matching the revenue generated by Act 131 during its first full year.

While Act 84 worked to generate guaranteed revenue which had been promised under Act 131, the two laws do not work in unity. Instead, the increased statewide tax on cigarettes passed under Act 84 is damaged by the local tax passed under Act 131. The $3.00 per pack increase in the City of Philadelphia will result in more Pennsylvanians buying cigarettes from other states like Delaware and New Jersey or from the black market.

The loss of revenue is already noticeable within Act 84 as the Independent Fiscal Office (IFO) showed this new tax rate, during the first four months of this fiscal year, raised an additional $98 million. In comparison to meet its projected revenue, the tax would need to generate $138 million during the same time period. At this rate cigarette revenue will be close to $120 million short of its original estimate by the end of the fiscal year.

This being said, the numbers from the IFO have yet to take into account the new regulations passed by Philadelphia on the sale of cigarettes. By limiting options for purchasing cigarettes within the city after increasing the price by $3.00 over the past few years, the revenue from this tax generated in Philadelphia will decrease sharply. This poses a problem for the state with 5-7% of smokers living within the city and the state’s current revenue system being structured on taxes sin like the tax on cigarettes.

Although proponents of sin taxes claim “the tax is meant to improve public health”; the tax is often only meant to increase revenue. These two public rationales for cigarette taxes are dueling priorities as the state seeks to balance a budget with stable revenue while trying to prevent the taxed purchase altogether. The result is an unbalanced budget as smokers quit or, as is more often the case, they purchase cigarettes from other markets including the black market try to avoid higher costs. Pennsylvania, now with the nation’s 10th highest vice tax, is showcasing this problem as seen within the IFO’s monthly report on revenue trends.

In order to prevent further decay in current state revenues and to plan for the next fiscal year, I intend to introduce legislation to repeal the $2.00 per pack tax under Act 131. As the commonwealth is dedicating funds in the place of the Act 131 local tax, this tax is no longer needed. Rather than funding schools within Philadelphia, the local cigarette tax in the city is now eroding state revenue upon which our current budget is predicated on.

Please join me and co-sponsor this legislation to prevent further revenue decay for next fiscal year. Should you have any questions contact Jordan Grant at 717 767-3947 or jgrant@pahouse.gop.com.

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Introduced as HB481