States' Plan To Get Federal Cigarette Tax Could Go Up in Smoke

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A federal tax on cigarettes that several states are counting on picking up to finance education reform might become a casualty--along with the reforms themselves--of the mounting federal debt.

The 8-cent tax, imposed by the Congress in 1982 as part of a package of "revenue enhancements," doubles the federal levy on a pack of cigarettes and raises more than $1.6 billion a year. It is due to expire on Oct. 1.

Noting the expiration--and recognizing that it offers a way to raise revenue without appearing to raise taxes--more than a dozen states have moved to fill the vacuum left by the federal government's withdrawal.

All told, some 27 states are expected to consider a cigarette tax increase this year, according to the Washington-based Tobacco Institute.

In a handful of those states--Maine, Kansas, New Hampshire, South Dakota, and Vermont--the expected revenues have been tied specifically to education reform.

"The states are expecting to get that money," said Byron Champlin, House information officer for New Hampshire. "Once you dangle that money in front of state government, it's hard to resist taking it."

But the Congress--and even some members of the Reagan Administra-tion--may have other ideas.

Representative Fortney Stark, Democrat of California, a member of the House Ways and Means Committee, has already introduced legislation that would make the 8-cent federal tax permanent. Representative Stark's bill would devote the revenues to Medicare, to help pay for the cost of smoking-related disease.

In the Senate, a noted cigarette foe--Senator Bob Packwood, the Oregon Republican who is the new Finance Committee chairman--has said it is his "hunch" that the 8-cent federal tax will remain intact, according to an aide.

And at least one member of the President's Cabinet--Health and Human Services Secretary Marga-ret Heckler--supports the tax. Ms. Heckler sees it as "a great way of offsetting the cost of smoking-related problems" covered by Medicare, according to an aide. Ms. Heckler has discussed her views with the President, the aide confirmed.

Treasury Department officials decline comment on the subject.

State Uncertainties

Because the federal fiscal year starts later than the state year, it is possible that a state could vote to pick up the tax, only to find later that the Congress decides to hold onto it.

Some states--including Maine, one of only two so far to have already adopted the tax and tied it directly to education reform--would avoid this dilemma by collecting the tax regardless of what happens at the federal level.

But if the Congress decides to keep the tax, those states would be left with an 8-cent increase in the price of a pack of cigarettes, which no smoker could fail to notice.

In some states, the uncertainty about the Congress's intentions could lead legislators to vote against the tax increase and to cut spending. "It certainly makes a great difference in the willingness of the legislature to respond to the Governor's proposal," said John Dooley, an aide to Vermont's new governor, Madeleine Kunin, who recently proposed a series of education reforms. "If the news out of Washington is that the tax is going to be maintained or it looks like it, then there is some opposition."

Yet, according to Mr. Dooley, Governor Kunin's proposed reforms "could be funded only if the cigarette tax of 8 cents is included" in the budget. If the tax measure does not pass, "the first place the legislature will look to cut is education," he said.

In neighboring Maine, meanwhile, the legislature has already begun to back away from its unqualified endorsement of the 8-cent state tax last year.

House Speaker John Martin, a Democrat, has introduced legislation that would make the state tax contingent on the expiration of the federal tax. Mr. Martin says that Gov. Joseph E. Brennan, also a Democrat, has agreed to reconsider the tax if the Congress extends it at the federal level.

But an aide to Governor Brennan maintained last week that Maine's tax increase is completely independent of the federal tax. And another of the Governor's spokesmen vowed to "lobby very vigorously" against federal efforts to keep the tax.

The value of the tax in Maine--$13 million a year--just about equals the first-year cost of the state's most controversial reform--an across-the-board increase in salaries for teachers.

But Mr. Martin vowed that even if the state loses the tax, it would have "absolutely no impact" on the reform package. The state would simply fund the reforms with other revenues, he said.

Asked how, Mr. Martin replied: "That's our problem."

Group Move Suggested

In New Hampshire, House Speaker John Tucker has introduced legislation that would have the state collect the $16-million-a-year tax primarily to replenish the state's education foundation aid.

According to Mr. Champlin, Mr. Tucker has received assurances from the White House that the federal tax will expire. But in the event it does not, Mr. Champlin said, New Hampshire is prepared to raise its tax if surrounding states--he named Maine, Massachusetts, and Vermont--raise theirs.

"If they go 8 cents, we'll go 8 cents," he said.

In Kansas, the only other state besides Maine that has already adopted the tax, the $17-million tax would also finance education reform.

But according to Charneil Hadl, an aide to Gov. John Carlin, the state tax would only go into effect after the tax expires at the federal level. "We're not counting on it at this point," she said, adding that the state has other resources to finance reform.

"What basically it affects is the balances," she said. "That's not to say in the legislature's mind it might not affect" spending, she said.

In South Dakota, the tax would go into effect regardless of what happens in Washington, and would raise $5.6 million a year for education reform.

Other states considering the tax, but not tying it specifically to precollegiate education, include Alaska, Florida, Maryland, Montana, Ohio, Oregon, and Wyoming.

State leaders are mindful that the Congress beat back attempts last3year to extend the tax, and they can count on Senator Jesse Helms, Republican of North Carolina, backed by the tobacco lobby, to again lead the fight.

Federal Direction Unclear

"Our position is that the sunset is law and that it will take an act of Congress to change that," an aide to Senator Helms said last week.

The House approved legislation last session that would have kept half of the tax--4 cents--through 1987, but the Senate defeated a measure by Senator Daniel Patrick Moynihan, Democrat of New York, that would have made the full tax permanent. The House measure then died in conference committee.

"That was to help Jesse Helms," an aide to Representative Stark said flatly. Senator Helms was engaged last year in a tough re-election battle.

But with Senator Helms now safely re-elected, with Senator Packwood as the new chairman of the Finance Committee, and with the deficit dominating Washington politics, things could change.

"We're getting a lot of interest in the bill," said Gwen Gampel, an aide to Representative Stark. "There is a good deal of sentiment wondering why we are subsidizing tobacco farming given the deficit ... when just about everyone agrees [smoking] is bad."

'A Whipping Boy'

Tobacco interests counter that theirs is already the most heavily taxed product in the country--"40 percent of the price is taxation," according to Alan Byrn of the Tobacco Institute--and they claim that tobacco consumption has fallen by more than five percent since the tax was imposed.

"Tobacco has been ... kind of a whipping boy," Mr. Byrn said. "It's been an easy target for government."

"That's the one tax everyone seems to think they can talk about," said one tax expert. "I can understand why the governors want to pick it up ... [but] knowing the climate at the federal level, [they will] not let an easy one like this get away."

Vol. 04, Issue 20

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