LEGISLATIVE FISCAL ESTIMATE TO

[First Reprint]

ASSEMBLY, No. 2157

STATE OF NEW JERSEY

DATED: JANUARY 6, 1998

BILL SUMMARY

      Assembly Bill No.2157 (1R) of 1996 increases cigarette taxes from $0.40 per pack to $.80 per pack and increases the tobacco products wholesale tax from 24% of the wholesale price to 48% effective January 1, 1998. The bill annually dedicates the first $150 million of cigarette tax revenue and the first $5 million of tobacco products revenue collected in a fiscal year to the Health Care Subsidy Fund beginning July 1, 1998. The bill also dedicates the next $50 million of cigarette tax revenue collected in a fiscal year to the School Construction and Renovation Fund, to be established by separate legislation.

OFFICE OF LEGISLATIVE SERVICES COMMENTS

      The Office of Legislative Services (OLS) estimates the bill will increase General Fund revenues by $89.8 million during the second half of FY 1998. Thereafter, the bill annually will generate $155 million for the Health Care Subsidy Fund and $50 million for the School Construction and Renovation Fund. In FY 1999 the bill will result in a net loss of $7.4 million to the General Fund and this loss amount will increase by about $3 million a year thereafter.

      While the tax rates for cigarettes and tobacco products are being doubled by the bill, the revenues to be realized will not double because the higher price will reduce sales. The "Cigarette Tax Increase" and the "Tobacco Products Wholesale Tax Increase" lines in the table below reflect OLS's estimate of the combined effects of higher rates and reduced consumption. The higher sales prices are also anticipated to have a positive impact on sales tax revenues, despite the lower sales volume. The "Net Additional Revenue" line in the table combines the sales tax impact with the higher tax rates.

      Beginning in FY 1999, the bill provides that $205 million from the cigarette and tobacco products taxes be deposited in special funds. The OLS analysis suggests the amount of additional revenue from the new taxes will be somewhat lower than the amounts to be deposited in the special funds. Accordingly the table shows that while the bill will generate significant new revenue for the State, there will be a small negative impact on General Fund revenues beginning in 1999.

This fiscal estimate has been prepared pursuant to P.L.1980, c.67.