Authorities price range deficits require motion in retail

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LAKEVILLE, Minn. – As governors across the country issue residence orders and require partial or total shutdowns in response to the coronavirus pandemic, state governments have seen significant revenue shortfalls and increased spending at the same time. In contrast to the federal government, which can have budget deficits, the states are obliged by their constitutions to balance their budgets every year.

As a result, the Center for Budgetary and Policy Priorities has released an estimate of the revenue shortfalls in all 50 states for fiscal years 2020, 2021 and 2022. States could lose $ 185 billion in revenue in FY2020 and $ 370 billion in U.S. revenue in FY2021 and $ 210 billion in FY2022 for a total of $ 765 billion in lower tax and tax revenues over the three-year period, so the estimate.

This means that any state could have budget deficits of hundreds of millions of dollars, with some states running below billions of dollars compared to regular projected revenues. With the potential to lose roughly 20% of their expected revenue, and if the federal government doesn't provide additional federal aid to replace some of the lost revenue, state governments will face major spending cuts, significant tax hikes, or a combination of both in 2021 and in the following years.

In the crosshairs

While states levy taxes in a number of ways – including income taxes, sales taxes, and corporate taxes – one area lawmakers will likely focus on for additional revenue will be state tax rates on cigarettes and tobacco products. This risk of tax increases on cigarettes and tobacco products must be taken seriously by retailers, as cigarettes and tobacco products make up a significant portion of the sales in the average convenience store.

Retailers need to be proactive and consult with their state lawmakers ahead of the upcoming 2021 legislative sessions. Communicating with lawmakers about the impact of higher tax rates on cigarettes and tobacco products is critical in educating elected officials about the consequences of higher tax rates. Perhaps more than ever, the budget constraints states will face require retailers to reach out to state lawmakers representing the counties where their stores are located and ask them to look into what can happen if the tax rates for cigarettes and tobacco will be increased.

The consequences of increased tax rates can include:

  • The regressive character of cigarette and tobacco taxes for people with lower incomes is intensified.
  • Consumers will look for cheaper sources of cigarettes and tobacco products in neighboring countries, on the Internet or in illegal markets.
  • Lower sales result in lost retail income, which is currently helping to retain employees and keep stores open.
  • Countries that increase tax rates on cigarettes and tobacco could generate less excise tax revenue than they did before the tax increase, which puts further pressure on budget deficits.

Reputation in retail

Getting classified as a "material company" and staying open during the coronavirus pandemic was a huge challenge. An increase in tax rates only has a negative impact on convenience retailers by putting more pressure on sales.

Now is the time for retailers to phone and email lawmakers and express their concerns about future tax hikes on cigarettes and tobacco products. Contact information for state lawmakers is available on each state's legislative website. Taking a few minutes to make a phone call or write an email could have a positive impact on the bottom line of a number of bills that were sure to be introduced in 2021 to reduce tax rates on cigarettes and Increase tobacco products.

Thomas Briant is the executive director of NATO, a tobacco trading association based in Lakeville, Minnesota. You can reach him at [email protected].

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