Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, January 17, 1992 TAG: 9201170541
SECTION: EDITORIAL PAGE: A-10 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
2.5 CENTS IS RIDICULOUS
A SENSE of logic and fairness lends appeal to Gov. Wilder's proposed tax on health-care providers. Medical costs are, after all, a principal source of the half-billion-dollar-plus shortfall the governor's budget must cover. So why not take a little from one pocket to put in the other?The idea isn't obnoxious. But another, better option is available, one offering neater symmetry. It's a tax that could improve public health and reduce health-care costs even as it helps cure the state's fiscal maladies.
Raise the cigarette tax!
Consider:
Virginia's current excise tax on a pack of cigarettes, 2.5 cents, is the lowest in the country. It hasn't changed since 1967, when it was lowered (!) from 3 cents.
By contrast, 18 states since 1989 have raised their tobacco taxes significantly. Texas raised its cigarette tax from 26 to 41 cents a pack, California from 10 to 35 cents, Florida from 24 to 34. West Virginia charges 17 cents a pack.
Thirty years ago, a pack of cigarettes cost about 25 cents. Combined state and federal excise taxes in Virginia amounted to 45 percent of the retail price. By 1991, the cost of a pack had risen to about $1.50 - but even with increases over the years in the federal tax, the combined state and federal taxation had fallen to less than 15 percent of the retail price.
Thirty states have excise taxes of 20 cents or more. The federal government applies a 20-cent tax, set to rise to 24 cents in 1993. Right now, Virginia is sending big amounts of excise-tax dollars to Washington every year, while keeping little for itself.
According to calculations by the state Board of Health, Virginia could increase state revenues by well over $100 million a year if it were to tax cigarettes at the same rate that the federal government charges. A 24-cent-per-pack tax would place Virginia about in the middle of cigarette tax rates of all the states.
So the question is: What are we waiting for?
The answer has something to do, of course, with the tobacco lobby's influence in Richmond. But this isn't an acceptable answer.
The advantage of sin taxes is that they may discourage consumption. Sure, some smokers will travel to other states to buy cigarettes. But Canada borders U.S. outlets, yet still finds it worthwhile to tax cigarettes to the point that they cost about $4 a pack.
Cigarette consumption is declining. If sin taxes reduce it further - and studies suggest they might, especially among teen-agers - then revenues would decline. That's OK, too, for a simple reason: Smoking not only kills people (more than 7,000 Virginians every year), it also exacts huge costs that a 24-cent or even a 50-cent tax wouldn't come close to recovering.
The American Lung Association estimates that every pack of cigarettes burns up $2.17 in medical and insurance bills and lost productivity. With sales of 719,000 packs in Virginia in 1990, that comes to about a $1.6 billion yearly economic loss.
As Medicaid and other health-care costs drive up the price of government in Virginia, it makes sense to raise the cigarette tax - as Cabell Brand, chairman of the state Board of Health, officially recommended last month.
The same logic applies to alcoholic beverages. Doubling Virginia's taxes on wine, beer and ABC-store products would raise $100 million in new state revenues, according to Health Board calculations. And this would only bring Virginia's alcohol taxes in line with rates in such states as North and South Carolina, Florida and Alabama.
Combined, the increases in cigarette and alcohol taxes would add perhaps $200 million a year to the state's coffers. Brand (the Salem businessman and chairman of Total Action Against Poverty) and the state Health Board propose to commit these revenues to a long-range plan for improving primary health care and emphasizing prevention of illness in Virginia.
Lawmakers can recognize the merits of this plan without dedicating tax revenues to it. Too much earmarking of taxes isn't wise. The assembly would be wise, though, to raise the tobacco and alcohol levies, and substantially, as part of a comprehensive tax package. To do otherwise would be to favor special interests over the health of Virginia's government and citizens.