Maine Gov. Janet Mills (D) may have made an enemy of President Donald Trump, but her push to hike cigarette taxes by 50 percent is making her plenty of friends next door in New Hampshire.
Despite falling revenues and the end of the COVID-related federal cash crunch, Mills has proposed an approximately $11.6 billion biennial budget that increases spending by more than $1 billion. She’s currently $450 million short on the revenue side, so she’s proposed a series of tax and fee hikes, including raising taxes on both tobacco and non-tobacco nicotine products.
It’s Mills’ plan to increase cigarette taxes from $2 to $3 a pack —and bump up taxes on non-tobacco nicotine products by a corresponding amount —that’s making Mainers mad and Granite Staters glad.
Most of Maine’s population lives in the southern part of the state, and many do their shopping across the state line in Portsmouth, Dover, and Rochester. If the state tax on a carton of smokes goes from $20 to $30, experts like Michael LaFaive of the Michigan-based Mackinac Center predict more Mainers will make the drive — and bring their shopping dollars with them.
“Consumers are not sheep lining up to be sheared of their wool,” LaFaive told the Maine Joint Standing Committee on Appropriations and Financial Affairs in February. “Many Maine smokers will make runs to New Hampshire to save a buck. In fact, the Granite State rakes in $49 million more in tax revenue than it would absent smuggling.” The same would undoubtedly happen for consumers– and smugglers– of those little, round containers of nicotine pouches that so many people have shifted to in an effort to lay off actual cigarettes.
In the world of excise tax policy, “smuggling” is a reference to purchasing goods like alcohol across state lines, not slipping untaxed products across the border — though that practice often increases when taxes are raised, too.
Pointing to his research, LaFaive told legislators that for every 100 cigarettes consumed locally in New Hampshire, another 31 are “smuggled” to other locations, usually border states with higher excise tax rates. And he warned legislators hiking the excise tax by 50 percent would find the smuggling rate leaping to 14 percent of the marketplace. Data is less available for nicotine pouches, which are newer products. The Food and Drug Administration under President Joe Biden authorized companies to market them as harm-reduction products.
This isn’t merely economic theory. A report on interstate cigarette smuggling from the Tax Foundation and Mackinac Center for Public Policy found that between 2007 and 2022, New Hampshire earned an estimated $955 million in state revenue from cigarette buyers who then “smuggled” their purchases to higher-tax states.
The Granite State’s $1.78 per pack tobacco tax is the lowest north of Virginia, and high taxes in Massachusetts and New York– plus the route cut along the Atlantic seaboard by I-95– have helped make the Granite State number three in the nation for outbound cigarette smuggling.
In fact, the free-market Josiah Bartlett Center for Public Policy estimated Massachusetts’ 2020 ban on the sale of flavored tobacco products, which, under Massachusetts law, includes products like Rogue or ZYN, led to a surge in state tax revenue that helped New Hampshire avoid a business tax hike.
And it’s not just tax revenues impacted by excise tax policy.
After raising taxes and banning popular flavored products, Massachusetts had a 21,000 percent increase in illegal vape seizures in a single year.
That is not a typo.
The findings are from an investigation by the Massachusetts Multi-Agency Illegal Tobacco Task Force, which is under the umbrella of the state’s Department of Revenue. State police vape seizures jumped from 1,326 units to 279,432 illegal products in the last fiscal year.
Critics, like the New England Convenience Store and Energy Marketers Association (NECSEMA), say the study shows how misguided the policies are and that this outcome was easy to predict.
“These numbers are absolutely staggering and prove what NECSEMA has warned from the start — Massachusetts has created the perfect environment for illegal smuggling,” said executive director Peter Brennan. “Our members are losing customers to the illicit market every day, and the state is bleeding tax revenue because criminals are filling the void created by excessive taxes and product bans.”
If Maine hikes cigarette taxes by a dollar a pack, the same forces are almost certain to come into play. And it’s not just tobacco. NECSEMA members point out that people who drive across the line to buy a few cartons of cigarettes often buy other consumer goods as well.
“There’s a gazillion New Hampshire liquor stores the second you cross from Maine into New Hampshire,” said Jacob Posik, director of legislative affairs at Maine Policy Institute. “It’s because it’s a lot cheaper to buy it over there, and I’m sure the phenomena exist for many different states.”
He warned that when cigarette taxes don’t raise the money Mills wants, which could be troubling to public health advocates because the tax hike could be used to help fund rural health education at the University of Maine medical school, Maine will start looking at other options.
“I don’t consume cigarettes, but if the state of Maine doesn’t generate the revenue that it needs to generate on a tax increase like this, when do they start coming after my pockets?” Posik said.
