One option being considered to increase revenue to help Georgia solve its transportation problems is to boost the state’s excise tax on a pack of cigarettes to $1.60. A Georgia State University study predicts the increase on what is now one of the lowest cigarette taxes in the country could raise up to $585 million a year.
States with the lowest tax rates
Missouri: 17 cents
Virginia: 30 cents
Louisiana: 36 cents
Georgia: 37 cents
Alabama: 42.5 cents
States with the highest tax rates
New York: $4.35
Rhode Island: $3.50
Source: Federation of Tax Administrators, Campaign for Tobacco-Free Kids
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Georgia could take in an extra $585 million next year by raising taxes on cigarettes and smokeless tobacco to about the national average, a tempting pool of money for a state desperately trying to raise big money for roads and transit.
A Georgia State University analysis estimates that raising Georgia’s cigarette tax to $1.60 a pack would also have a lasting effect on revenue for years, bringing in hundreds of millions of dollars annually. The state could still raise an extra $554 million by fiscal 2020, despite the likelihood that fewer people would smoke because of the rate increase, according to the GSU fiscal report obtained by The Atlanta Journal-Constitution.
The numbers include an estimated increase on the wholesale price of loose and smokeless tobacco from 10 percent to 43 percent. And the report assumes that the state would likely see a slight bump in sales tax revenue.
With the state’s 37-cents-per-pack cigarette tax having not budged for more than a decade, Georgia smokers currently pay one of the lowest cigarette taxes in the nation. Meanwhile, smoking-related illnesses are a big drain on taxpayer-funded health care programs.
"The 82 percent of Georgia's adult population that doesn't smoke is heavily subsidizing the 18 percent who do smoke," said state Sen. Chuck Hufstetler, R-Rome, who supports raising the tax and requested the analysis. "The people who do smoke need to pay their fair share."
State in search of new revenue
The eye-popping numbers in the report may have special resonance this year as lawmakers seek to raise more than $1 billion in additional revenue for transportation projects.
The House's current proposal, House Bill 170, would eliminate a state sales tax on motor fuels and phase out the local taxes on gas. In their place, the state would charge an excise tax of 29.2 cents per gallon and local governments could tack on an optional local tax of 6 cents per gallon.
While the bill also tries to pull in money from other changes — including a new annual user fee on drivers of electric vehicles to fund transit — it does not address other fees or taxes such as the cigarette tax.
Additionally, lawmakers still don’t know for sure how much money HB 170 will bring in. And Gov. Nathan Deal this week suggested lawmakers may want to aim higher and bring in more than the $1 billion they have assumed HB 170 would generate.
‘Real world’ vs. ‘fantasy land’
That doesn’t mean increasing tobacco taxes would be easy.
Jim Tudor, a longtime lobbyist for the Georgia Association of Convenience Stores, said raising cigarette taxes to $1.60 a pack would simply force more Georgians to travel to lower-tax border states, such as Alabama, South Carolina and Tennessee, for cigarettes.
“Anyone who proposes to simply raise the price of any item to a national average without understanding the competitive market that one deals in obviously does not operate a retail business,” Tudor said. “We don’t compete against New York, we don’t compete against California. We do compete with South Carolina, Alabama, Tennessee and Florida.
“We look at how we stack up against those states,” he said. “We look at where we stack up in the real world instead of some fantasy land others are visiting.”
Currently, cigarette taxes are higher in Alabama, Florida, South Carolina and Tennessee, but none of them charge the national average of $1.54 a pack.
Supporters cite health benefits
Andy Lord, a lobbyist for Georgians for a Healthy Future, a health care policy group, doesn’t dispute that there would be some cross-border sales if taxes in Georgia went up.
However, he said, only a little more than 3 percent of Georgians live in a border county and smoke, making them potential cross-border tobacco buyers.
Hufstetler, a nurse, also believes the rate increases could help trim some of Georgia’s rising health care costs. Raising taxes on tobacco could accelerate a decline in Georgia of people using such products, which the Atlanta-based U.S. Centers for Disease Control says has been consistent since 2005.
The state’s top public health official, Dr. Brenda Fitzgerald, said she doesn’t comment on legislative proposals. But she did say her department promotes smoking cessation programs throughout the state, “supporting our belief that every Georgian benefits from eliminating the use of tobacco products.”
“Virtually every doctor in America agrees that smoking and tobacco products are harmful to overall health,” Fitzgerald said.
Revisiting an old fight
Advocates for higher cigarette taxes have been here before.
In 2003, new Gov. Sonny Perdue proposed raising cigarette taxes from 12 cents per pack to 58 cents to help fill gaping holes in a recession-ravaged state budget.
Fresh off a Republican takeover of the Governor’s Mansion and the Senate, both parties were nervous about raising taxes, and Perdue’s proposal took a historic beating in the House when it came up for a vote.
That General Assembly session dragged on into late April until legislators passed a tax bill that increased the cigarette levy from 12 cents to 37 cents per pack. Even then, legislators didn’t back the increase until the bill included a future massive income tax cut for retirees.
Supporters of higher cigarette taxes have been trying to gain political footing in the General Assembly ever since, with limited success.
Study tallies health costs at $170 billion
Terry F. Pechacek, a professor of health management and policy at Georgia State’s School of Public Health, said the state’s low tobacco tax has made it easier for new generations of young Georgians to get addicted to cigarettes.
“Over 200,000 youth in Georgia under age 18 are predicted by the U.S. surgeon general to die prematurely from starting to smoke in the future,” said Pechacek, who recently served as deputy director for research translation in the Office on Smoking and Health at the CDC. “Raising the tax rate on cigarettes is one of the best things we can do to prevent these deaths.
“Raising taxes on cigarettes is a big win-win: You save lives and you raise money for the state,” he said.
Pechacek was the senior author of a recent research report that found that smoking-related illnesses cost taxpayers about $170 billion in annual health care spending.
Health care advocates have been lobbying Senate Republicans for several weeks to include the tobacco tax increase in the transportation plan.
“This will go a long way toward solving a lot of problems,” Lord said, “both in transportation and in health care.”
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Credit: John Spink / John.Spink@ajc.com