Tobacco as a Budget Balancer?

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Tobacco as a Budget Balancer?

NEW YORK -- States with lawmakers who have traditionally opposed cigarette tax increases are seeing a change of heart, going from giving little thought to a tobacco tax increase to arguing over how much the tax should go up and where the money should go, The New York Times reported.

One such state is Mississippi, with an at 18-cent per pack tax that is the nation’s third-lowest and has not been raised since 1985, according to the report.

But it’s not alone. Budget shortfalls are pushing more than 20 states to look to tobacco for revenue. Arkansas has nearly doubled its tax to $1.15 a pack, and Kentucky’s will double to 60 cents, effective April 1, the report stated. Meanwhile, increases are proposed in tobacco-growing states such as North Carolina, South Carolina and Georgia.

"Everything lined up for us this year," Jennifer Cofer, the executive director of the American Lung Association in Mississippi, told the newspaper. "Our state needed money. We’ve made a great case for it for almost seven years in a row. We have health care expenditures in astronomical proportions. It’s kind of like, why not now?"

But the uses of the tax revenue in Mississippi are being debated, with the House and Senate passing bills that differ on the amount of the tax and whether it should all go to the state’s general fund, or also be used to pay promised subsidies to local governments and to help people quit smoking, the Times reported.

"Our position is to just increase the tax," Cofer said. "We’re not proposing or pushing any earmarks."

Tobacco industry representatives, however, have argued tobacco taxes unfairly burden smokers, who are mostly working class or poor, and jeopardizes jobs at retailers such as convenience stores, where more than 30 percent of total sales can come from cigarettes, the report stated.

"Many of these states are asking the very definition of Main Street to bail out state capitals," Frank Lester, a spokesman for Reynolds American, which makes Camel and other major brands, told the Times. "It’s just another bailout."

In addition, Bill Phelps, spokesman for the Altria Group, the parent company of Philip Morris USA, argued states often overestimated revenues from cigarette tax increases. From 2003 to 2007, there were 57 state tax increases, and in 41 cases they fell short of projections, Phelps told the paper.

"We don’t think it makes a lot of sense to fund what are often important government programs with a revenue source that is in decline," he said. "Just in the last 10 years, sales have declined an average 3 percent a year."

But Frank J. Chaloupka, economist and director of the Health Policy Center at the University of Illinois, told the paper cigarette taxes had not reached the threshold of diminishing returns. "We haven’t yet seen a case where if you raise taxes you don’t raise revenues," he said, adding New Jersey did see a decline in revenue, but other factors, including a comprehensive smoke-free-air law that went into effect before the increase, drove down consumption.

Low-tax states are not alone in proposing tobacco tax increases. In Oregon, now at $1.18 a pack, Gov. Theodore R. Kulongoski proposed a 60-cent increase, while New Jersey Gov. Jon Corzine asked the legislature for a 12.5-cent increase over the current $2.58, according to the report.

In other tobacco news, the New York Association of Convenience Stores (NYACS) continued its campaign urging lawmakers to collect the taxes on cigarettes sold at Native American retailers to non-Native Americans, citing an economic study confirming that "the hemorrhage of New York State revenue" from untaxed cigarette sales reached $1 billion a year, according to the association.

"With New Yorkers being asked to absorb billions in spending cuts, new taxes and fee increases, it would be fiscally irresponsible to adopt a budget without tapping into this recurring revenue stream," NYACS President James Calvin said in a statement.

The analysis, by Brian O'Connor Ph.D., showed that if such taxes were collected on tribal sales of cigarettes to non-Native American customers, it would yield revenue "in the proximity of $1 billion," NYACS stated. O'Connor's previous analysis, done in February 2008, amounted the tax loss at $600 million. Since then, the state excise tax on cigarettes nearly doubled, to $2.75 a pack, the association stated. And as a result, the percentage of untaxed cigarette sales in New York now exceeds 50 percent for the first time, the report found.