Big Tobacco Goes on the Offensive in N.J.

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Big Tobacco Goes on the Offensive in N.J.

NEWARK, N.J. -- Big Tobacco is partnering with convenience stores and gasoline stations to form a group called "Enough Already!" a lobbying group opposed to Gov. James McGreevey and his plan to raise cigarette taxes by 40 cents to $1.90 -- which would make New Jersey's the highest state tax in the nation.

As part of its efforts, the group is launching a telephone hot line (877-3NO-CIGTAX) and a Web site "dedicated to stopping Governor McGreevey." While the tobacco companies routinely spend hundreds of thousands of dollars each year in New Jersey on lobbying and campaign contributions, the new assault is more direct, more public and more aggressive than in recent years, reports the Newark Star-Ledge.

This month, Lorillard Tobacco Co. launched a $1 million radio and newspaper advertising campaign in Delaware, New Jersey and Pennsylvania arguing that tax hikes will benefit only cigarette smugglers and the mob. One features the scowling mug of a mobster wearing a pinstriped suit and a pinkie ring. Philip Morris has its representatives calling legislators and reporters to preach about the "unintended consequences" of higher cigarette taxes,

"They've been ducking so long, now they're saying, 'Enough is enough,'" said Robert Shepherd, a former New York state deputy tax commissioner, who was in Trenton recently to make the rounds on Lorillard's behalf. "We make a legal product. We market it to adults. How many times are you going to kick us?"

New Jersey doubled the tax to 80 cents in 1997 and raised it to $1.50 last year as a way of helping to close a multibillion-dollar revenue shortfall. Twenty-one states hiked the tax on cigarettes last year, and more are considering it this year. The state's Treasury Department collected $236 million in cigarette taxes in the 2002 fiscal year, and 10 months into the 2003 fiscal year, which ends June 30, it had brought in $352 million. At that rate, Treasury would collect nearly $200 million more from smokers this year than it did last year. Even without this year's projected 40-cent tax hike, the state estimates it will bring in nearly $500 million in cigarette taxes in the fiscal year ending June 2004.

McGreevey is not entertaining the idea of easing back on another tax increase, and the anti-smoking groups want him to increase the tax to an even $2. In New Jersey, a pack of cigarettes currently costs more than $5. In neighboring New York City a pack of cigarettes cost $7.50 a pack.

New Jersey treasury spokesman Tom Vincz disputed the tobacco companies' argument that a second tax increase on smokers in two years is unfair: "The cigarette tax was just part of a mix of solutions that were developed to close a $5 billion shortfall in the budget," Vincz said.

"The gig is up," said Bill Pascrell, Philip Morris' Trenton lobbyist, explaining why cigarette manufacturers are so much more aggressive this year. "We gave at the office already."

The companies are working to challenge the conventional wisdom that hiking the cigarette tax is a win-win situation that brings in millions more to the state Treasury while it encourages people to quit smoking. At $1.90 a pack, New Jersey would have the highest state cigarette tax. (New York City smokers pay $3 in taxes, half to the state, half to the city.) That would make the state prime territory for smuggling, Shepherd said.

Black Market Fears
Shepherd, who worked in tax enforcement for New York state for 11 years, said every tax hike brings an increase in black-market sales. Smugglers will buy cigarettes in a low-tax state, such as Virginia or Delaware, and ship them into New Jersey to sell them to convenience stores or out of their car trunks. Or mobsters will steal truckloads and dump them in New Jersey. "Or you're going to increase the smuggling problem you already have," he said.

This year, New Jersey law enforcement participated in a cigarette trafficking sting that nabbed 12 people who sold $2.2 million worth of cigarettes bought in Virginia and sold in New York, the report said.

Higher taxes have driven smokers to buy cigarettes in Delaware (where the tax is 24 cents per pack), Pennsylvania (where it's $1) or over the Internet (where it is easy to avoid paying any tax at all). The tax revenues collected so far indicate a dropoff in sales of about 80 million packs in New Jersey this fiscal year. That hurts the small businesses that sell cigarettes, tobacco lobbyists say.

"There are going to be a lot of unintended consequences and it's not just the tobacco companies that are going to feel it. The public is going to feel it," Philip Morris spokesman Rob Riggle said.