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Senate Panel Votes To Extend Cigarette Levy

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Washington--Nearly 20 states that voted to raise their taxes on cigarettes this year will have to look for another revenue source to support education and other state services.

Late last month, as part of a $38-billion deficit-reduction package, the Senate Finance Committee voted to retain and make permanant the current 16-cents-a-pack federal tax on cigarettes. The tax, doubled in 1982 as a "temporary" revenue-enhancement measure, had been set to revert to 8 cents on Oct. 1.

The House Ways and Means Committee had earlier voted to extend the full tax.

Senator Jesse Helms, Republican of North Carolina, was expected to lead the Senate fight against extension of the tax. But he and other tobacco-state senators withdrew their opposition after the finance committee included a new tobacco-price-support plan in the budget reconciliation measure.

In return for the price-support program, the tobacco lobby also dropped its objections to the tax extension. "Obviously we would have preferred that the Congress kept its promise. On the other hand, we recognize the need for a responsible price-support program," said Walker Merryman, vice president of the Tobacco Institute.

The full Senate is expected to pass the tax measure this week, aides said. In the House, the Rules Committee has sidetracked the bill that includes the tax extension, but aides said the House would approve a temporary extension of the tax until the full measure clears.

"It's fairly clear that the tax will remain in place," a Ways and Means staff aide said.

Anticipating the expiration of the tax, 17 states passed legislation ear-lier this year that would have automatically assessed the 8-cent additional tax at the state level, but only if the federal government allowed its tax to revert to 8 cents. Another six states voted to assess the 8-cent tax regardless of federal action.

Several of the states that voted to collect the tax, including Illinois, Kansas, Maine, New Hampshire, and South Dakota, had earmarked it for education. In Illinois, Kansas, and Maine, the tax was supposed to support education reform. (See Education Week, Feb. 6, 1985.)

The Maine legislature voted in 1984 to collect the tax regardless of a federal extension, but lawmakers in that state indicated this year that they might repeal the tax if the Congress voted to extend it.

Citing the federal deficit, a fi8nance-committee staff member said last week that states were foolish to think the federal government would let the tax expire.

"It was never in the cards," said Sam Richardson. "The whole premise on which the states proceeded was very shaky. From here, the political realities are that we have a deficit and we have to deal with it.''

The 8-cent addition to the federal cigarette tax raises about $1.6- billion a year.

The same budget package would also eliminate funds for federal revenue-sharing in 1987 and 1988, saving the government some $8.5 billion. The revenue-sharing program, already scheduled to expire in fiscal 1986, has been a significant source of funds for schools in many states.

--jrs

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