Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, March 19, 1993 TAG: 9303190261
SECTION: BUSINESS PAGE: B12 EDITION: METRO
SOURCE: ARLENE LEVINSON ASSOCIATED PRESS
DATELINE: LENGTH: Medium
TOBACCO TAX REVENUE'S UP IN SMOKE
It seems to make perfect sense - if cigarettes rob Americans of their health, why not tax them more to help pay for health insurance?One answer: Because revenues from tobacco taxes are crumbling like the ash on a cheap cigar, along with the percentage of Americans who smoke.
They're butting out for health reasons or because tax increases make smoking too expensive. Either way, the public treasury is taking a hit.
A 50-state survey by Associated Press bureaus found 20 states reporting tobacco-product tax revenues in decline and 11 others that were in decline until they raised their excise tax. The rest generally were static.
The same goes for federal tobacco revenues, which fell until the excise tax went up from 16 cents to 20 cents a pack in 1991. This year it went up to 24 cents.
While tobacco taxes yield lots of ready money at first, they're unlikely to provide long-term funding for something huge and growing like universal health care.
In 1965, the year after the first U.S. surgeon general's report linked smoking to cancer, 42.4 percent of Americans over 18 smoked. By 1990 that figure had dropped to 25.5 percent. Accordingly, government treasuries have eased their dependence on tobacco.
Tobacco taxes peaked in 1968 in providing 5.2 percent of state revenues. That share has fallen to 1.9 percent. Smokers' current $5.8 billion contribution to the federal pot is 0.4 percent of all revenues, a mere puff compared to the 1.39 percent in 1968.
This pattern of sliding revenues has two chief causes, economists say.
Tobacco taxes don't grow with the economy, necessitating regular increases. And when tobacco taxes get high enough, some smokers quit and would-be smokers don't start. Another effect can be bootlegging and black markets.
The Minnesota Revenue Department offered this equation: For every 10 percent increase in the price of cigarettes, sales fall 4.5 percent.
The tax on smokers is "a mechanism to limit consumption," said Mark Muchow, chief tax analyst for the West Virginia Division of Tax and Revenue. "Every time the cigarette tax is increased, a few more people say, `It's time to quit.' "
Cigarettes cost, on average, $1.90 a pack, including the 24-cent federal tax and state taxes that range from Virginia's 2.5 cents to Massachusetts' 51 cents.
New York is fairly typical. Revenues on tobacco products slid from $606 million in fiscal 1991 to $596 million in fiscal 1992. This year they're projected at $557 million.
Or take California, which pumped up its cigarette tax from 10 cents a pack to 35 cents in 1989. That only briefly stopped the slide in revenues. Cigarette excise taxes jumped from $560 million in 1989 to $787 million in 1990, but started to fall again the next year.
Yet this steady, if diminishing, cash flow remains attractive to lawmakers - and even presidents.
President Clinton said he may propose higher taxes on tobacco products to help pay for his national health insurance plan. He suggested it's only fair that smokers should pay more.
Former President Jimmy Carter has endorsed a $2 federal excise tax on cigarettes sought by the American Cancer Society, American Medical Association and the American Heart Association.
The more than $30 billion it would raise, he said in a Feb. 21 letter to The New York Times, "could be put to good use paying for health care reform, childhood immunization efforts and other high priorities."
In Congress there's a bill that would raise the federal cigarette tax to $1 a pack and put most of the money collected into health care.
Missouri House Speaker Bob Griffin wants to raise the 13-cent cigarette tax 4 cents to pay for primary health care in his state. Oregon Gov. Barbara Roberts proposes to raise the 28-cent tobacco tax 10 cents to finance smoking prevention and education and a proposed health program. Similar arrangements have support in a dozen other states.
Politicians and anti-smoking advocates who see cigarette taxes as a way to pay for health care are jumping on a bandwagon with shaky wheels, tax experts suggest.
"It's just not going to raise enough revenue, which is a fairly serious problem," said Hal Hovey, a former budget director for both Ohio and Illinois who now puts out two newsletters in Columbus, Ohio: State Budget & Tax News, and State Policy Reports.
"If you can't smoke in the White House and you can't smoke at work, I think the nature of smoking is that people won't smoke anywhere."