Jun. 6, 2003
Cigarette Tax: Up in Smoke?
By J. Barlow Herget
RALEIGH - Earlier this spring, the state legislature seriously considered increasing the excise tax on cigarettes. But they got over it.
It appears now that the federal government will bail out state budget writers with a one-time payment of $510 million. It's part of President Bush's tax cut package. (Of course, the same federal leaders helped put states in budget binds in the first place by reducing the federal share of mandated programs, such as Medicaid.)
The General Assembly had turned to the cigarette tax as one source of revenue to plug a $400 million hole in the budget. The shortfall appeared when April tax revenues didn't live up to expectations.
Given the state's struggle with budget deficits for the past three years, the cigarette tax is likely to stay on the table, if not this year, then next. It is instructive to look at the travails of this tax as a lesson in how the legislature works.
Proponents for the tax give two strong arguments for raising the cigarette tax:
One, for every penny increase on a pack of cigarettes, the state would receive $5.12 million. North Carolina now levies a 5¢ tax on each 20-cigarette pack. It's the third lowest in the nation. (Only Virginia and Kentucky have lower excise taxes on cigarettes.) A House bill sponsored by Reps. Jennifer Weiss, D-Wake, and Paul Luebke, D-Durham, would have raised the tax to 75¢ a pack and increased revenues by $386.4 million.
Two, health care lobbyists point to data from both the cigarette companies and the federal Center for Disease Control (CDC) that show such taxes reduce smoking. Simply put, the more a pack of cigarettes costs, the fewer are sold.
The American Lung Association of NC, for example, told legislators in April that for every 10 percent price increase, seven percent of young smokers stop buying smokes and four percent of adult smokers quit.
Of course, there's sure to be a point of diminishing returns, but North Carolina will never find it if left up to the legislature. Smoking in North Carolina, by the way, costs the state about $1.92 billion annually in health care costs and lost productivity. Talk at the end of May about a cigarette tax focused on more modest amounts, a dime or maybe a 15¢ increase per pack.
Opposition to the tax centers on political pledges against any tax increases and fears that the tax will damage the economic fortunes of tobacco farmers, manufacturers and others whose livelihoods are tied to tobacco.
Historically, the legislature looks after its own, and tobacco has been a mainstay of the state's economy for 150 years. Yet, tobacco farms have declined from 150,764 in 1950 to 12,095 in 1997. More precipitously, tobacco auction warehouses in five tobacco producing states shrank from 483 in 1973 to 66 in 2001.
These losses mean fewer voters involved in tobacco production. But there's always the money. Tobacco political contributions and influence remain powerful in the General Assembly.
For instance, three of the 10 most effective lobbyists as rated by the nonprofit NC Center for Public Policy Research, represent tobacco interests. These lobbyists and their companies, according to figures compiled by the nonprofit Common Cause organization, contributed $283,383 to political campaigns between 1996 and 2002.
In the House, for example, a quick examination of the 2002 Election reports shows that tobacco companies and their lobbyists made donations to 60 of the 120 members. Top beneficiaries include House Co-Speaker Jim Black, D-Mecklenburg, $19,000, Leo Daughtry, R-Johnston, $5,750; House Co-Speaker Richard Morgan, R-Moore, $5,200; Nelson Cole, D-Caswell, $4,700; Pryor Gibson, II, D-Montgomery, $2,550; Rex Baker, R-Stokes, $4,250; and Drew Saunders, $2,300, D-Mecklenburg. (Surprise! Weiss and Luebke received nothing.)
These gifts don't go unnoticed by recipients who face high election costs. The average House seat in 2002 cost $61,060 and a Senate seat, $198,150, according to Democracy North Carolina, a nonprofit watchdog group based in Carrboro.
Opponents of a cigarette tax increase will not cite these campaign contributions when making their arguments. That's not unusual, and many are doubtlessly sincere debating against tax increases or proclaiming economic hardships for tobacco farmers and workers.
But if you don't think these numbers played a big part in defeating a cigarette tax hike, you probably have been smoking more than tobacco.
Barlow Herget served two terms on the Raleigh City Council and is a contributor to "The North Carolina Century."
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