Pro & Con: Should the General Assembly raise the state tobacco tax?

YES: Don’t subsidize costly habit at the expense of services we need.

By Ron Stephens

I’m a proud Republican and a fiscal conservative. I’m also the lead sponsor on a bill that would raise an estimated $350 million in new state taxes and attract another $1 billion in federal health care funds to Georgia. What’s more, I’m looking forward to running for re-election this year and will campaign on this issue.

If all this sounds confusing and contradictory, let me explain. House Bill 39 would raise the state tax on cigarettes by $1 a pack — from the current 37 cents a pack (fifth-lowest in the nation) to $1.37. For a whole host of reasons, this is an idea whose time has come.

For me, the case for the so-called “buck a pack” increase rests mainly on the need to promote the good health of our citizens (by discouraging smoking) and on tax equity.

Right now Georgia’s 37 cents a pack cigarette tax generates about $237 million a year, but we spend $537 million a year treating smoking-related illnesses in Medicaid patients alone. That means Georgia’s taxpayers are subsidizing the medical costs for the smokers among us to the tune of $300 million a year. Per household, Georgians are contributing $550 a year to cover the smoking-related medical costs for the state’s Medicaid patients. Raising the cigarette tax by a buck a pack would generate at least $350 million and put the burden where it needs to be — on the smokers themselves.

Let me be clear that my purpose is not to demonize smokers. Smoking is an addiction, and most of the smokers I know have tried to quit — many times. Without a doubt, the higher tax will give some enough incentive to do so. I certainly hope so. It would suit me fine if the extra dollar tax caused every smoker in the state to stop tomorrow.

Sadly, history tells us that won’t happen. The last time we raised the tobacco tax was in 2003, when we bumped it from 12 cents a pack to the current 37 cents. In 2004, Georgia’s tobacco tax revenues increased by 142 percent. Cigarette manufacturers and retailers opposing my bill warn that it will simply drive smokers across state lines to lower-tax markets, but there’s not much evidence that happens. In South Carolina, for instance, tobacco tax revenues actually declined after Georgia raised its tax in 2003.

Beyond tax equity and health care issues is the fact, of course, that Georgia is facing unprecedented budget challenges. The General Assembly is struggling now to plug a $1.1 billion hole in the state budget. The “buck a pack” tax increase on cigarettes would attract an estimated $1 billion in new federal health care funds, giving us much-needed flexibility in other areas of the budget.

Without new revenue, we’re facing truly draconian budget choices. Do we really want to lay off state patrol officers, fire prison guards and reduce the number of school days so that we can maintain Georgia’s reputation as one of the cheapest cigarette markets in the nation? Is that more important than, for instance, rebuilding a public health system that is already suffering from more than a 30 percent vacancy rate and is inadequate to handle responsibilities that range from checking diabetes and hypertension to responding to disease epidemics and terrorist attacks?

These are not scare tactics. These are the choices now facing the General Assembly — and the people of Georgia.

The next few weeks will tell the tale. Will Georgia opt for a cigarette tax that finally eliminates what amounts to a $300 million subsidy for the cigarette industry and gives us the wherewithal to get through the current fiscal crisis without further undermining the public services Georgians count on? Or will we choose to preserve the dubious honor of being the source of some of the least expensive cigarettes in the nation?

The choice is all of ours to make together. Your House and Senate members need to know what you think.

State Rep. Ron Stephens (R-Savannah) is a member of the House Ways & Means Committee.

NO: Unreliable revenue source declines over time, hurts retailers.

By John Heavener

With state revenue sinking during this economic downturn, some state legislators think they can dig out of the budget hole by raising “sin taxes,” promising that it will not only improve our health, but also solve our revenue problems.

If only it were that easy.

Cigarette taxes are a quick go-to for politicians looking to fund their spending habits. But when raising cigarette taxes become a knee-jerk reaction to budget shortfalls, we need to look at all the facts.

Should the Legislature unfairly single out cigarettes for higher taxes, all while promising the public not to tax their way out of the budget mess?

Unfortunately, government wants to play a bigger role in our personal lives every year, making decisions about our finances, hobbies and health habits that used to be up to individuals to decide themselves. If smoking is their target today, what will it be tomorrow?

Tax advocates understand that most legislators have already pledged not to raise taxes and loath to even consider taxing our way out of the state’s spending problem during a time of economic uncertainty for Georgians. So these tax-increase advocates would have legislators single out cigarette smokers and retailers to carry the burden of a tax increase.

They are quick to point to a poll they recently commissioned that claims a majority of voters would actually support a “sin tax” increase. What these cleverly worded poll questions cannot explain away is what legislators hear every day in their districts: They want the state to cut spending and do not support using tax increases to balance the budget.

There is also a strictly practical reason to rethink raising cigarette taxes. Lots of data suggests that it doesn’t work, that higher taxes on tobacco products consistently have been known to fail to produce the higher projected revenues.

Higher taxes on cigarettes increase their retail cost and encourage more people to give them up or to go looking for cheaper cigarettes somewhere else. Either way, the intended revenues don’t add up.

Tying something as important as funding government programs to a tax that is designed to bring in a steadily declining revenue stream doesn’t make sense. It might provide a short-term fix, but one that virtually guarantees us insolvency down the road. We often fall into these fiscal traps, only to face a renewed crisis later.

And the short-term solution is no sure thing either. For example, New Jersey raised its cigarette excise tax by 17.5 cents in 2006. As a result, its tobacco tax revenue dropped by $22 million a year. The governor’s answer? Raise taxes another 12.5 cents a pack.

In many cases, raising tobacco taxes doesn’t make people quit, it just moves them to do their shopping in another state. If we raise the tobacco excise tax, Savannah-area retailers located close by the border can expect to see their revenues plummet — and tobacco sales constitute a hefty portion of the business done by numerous merchants, especially small, neighborhood stores.

Another common reaction to increased cigarette taxes is for smokers to turn to Internet vendors. These scam artists, many operating out of foreign countries, don’t charge taxes at all, nor do they pay them — failing to provide the state with legally required cigarette taxes.

Their business model of online ordering, credit card payment and mail-order delivery also make it possible for kids to buy cigarettes anytime they want. No ID check to worry about; all they have to do is beat their parents to the mailbox.

Unfortunately, as nice as it would be for a simple cigarette tax hike to solve all our problems, it just won’t work. There is still no substitute for fiscal responsibility. Whether they like it or not, lawmakers should bite the bullet and figure out a way to live within their budget, just like the rest of us.

John Heavener is president of the Georgia Retail Association.