New Jersey’s proposed ban on the sale of menthol cigarettes (Assembly Bill 1989) would reduce excise and sales tax collections by as much as $243 million per year. And with the significant revenue loss, smoking rates are unlikely to decline. New Jersey lawmakers should look to the recent Massachusetts experiment to see what to expect if they ban menthol in cigarettes and other flavored tobacco products.
Massachusetts was the first state to ban menthol cigarette sales in June 2020. In total, Massachusetts legal sale of cigarettes fell by almost 24 percent following the menthol ban.
However, declines in legal sales don’t necessarily translate to smokers quitting their habit. Consumers facing a ban may simply look for products for sale in other jurisdictions or from illicit markets. Data from discarded (smoked) cigarette packs show that consumers drove to other states to buy their cigarettes or supported other cigarette smuggling operations.
In the first year following the menthol ban, Massachusetts saw a decrease of cigarette stamp sales of 24 percent. Over the same time period, cigarette stamp sales increased 22 percent in New Hampshire and an 18 percent in Rhode Island. Cross-border shopping, illegal markets, and consumers simply switching to non-menthol cigarettes resulted in the New England region seeing no sizable decline in aggregate smoking compared to other regions of the country following Massachusetts’ menthol ban.
Despite no major decline in smoking, Massachusetts had to bear the full fiscal consequences of its policy. Massachusetts experienced a $116 million decline in cigarette tax collection the year following the menthol ban. Overall, the menthol ban experience has been so poor for Massachusetts that a bipartisan group of legislators have introduced two separate bills,
MA S1433 and MA H2406, to repeal the ban.
New Jersey should also weigh the fiscal consequences of a menthol ban. Flavored tobacco products constitute a significant portion of the market, accounting for more than 20 percent of cigarette sales and over 70 percent of non-tobacco nicotine products. Currently, New Jersey’s $2.70 taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. per-pack of cigarettes is the 13th highest state tax rate. In 2021, the state collected roughly $547 million in cigarette tax revenue, spending most of that revenue on a special health care subsidy fund and to support the state’s general fund.
New Jersey’s Office of Legislative Services estimates that a menthol ban would result in $205 million in lost cigarette tax revenue and an additional $38 million in lost sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. revenue. That doesn’t include lost sales revenue if consumers start shopping out of state for other items while they’re buying their cigarettes.
Currently, New Jersey is a net benefactor of cross-border cigarette shopping. Many consumers travel to New Jersey from higher-priced areas, like New York, buy their cigarettes, and then travel out of state to smoke them. New Jersey is roughly a 3 percent net exporter of point-of-sale cigarettes to consumers who smoke in other states, a net tax revenue gain of nearly $15.6 million dollars annually. A menthol ban could not only turn New Jersey into a net importer of cigarettes from other states—fewer out-of-state residents would buy their cigarettes in New Jersey and more New Jersey residents would seek other states in which to buy their menthol cigarettes—the state would fuel black market sales and criminal organizations.
The menthol ban also disproportionately affects certain New Jersey businesses and residents. The owners of convenience stores and small businesses who sell tobacco products will bear a heavy burden of a menthol ban. And Black New Jersey residents would be excessively affected. Roughly 85 percent of Black Americans who smoke use menthol cigarettes according to the CDC. Concerns over the resulting enforcement of the proposed menthol sales ban caused the American Civil Liberties Union of New Jersey to caution against implementation of a ban.
New Jersey’s proposed menthol ban has high costs and the potential to create serious harm to New Jersey residents and businesses. Lawmakers should be weary of flavor bans after seeing the results in Massachusetts.
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