Friday, January 30, 2009

The Good and the Bad about Tobacco Taxes

Yesterday, The U.S. Senate passed a bill the will expand the Children's Health Insurance Program, commonly known as S-CHIP, to some 37 million children across the United States. The expansion of the coverage will be funded by a 61 cent increase in tobacco taxes, which would make the federal tax on cigarettes $1 a pack.

Tobacco taxes. In Mississippi it has been an issue for a number of years. It was one that I dealt with and supported as a legislator. When I was there, we started pushing for a 50 cent increase to help the state's Medicaid budget. The demand later increased to 82 cents, which would make the tax on cigarettes a $1 a pack. That could possibly make a pack of cigarettes $8, which if a person smokes a pack a day, that will be an expense of nearly $2400 a year.

Currently, Mississippi has the lowest cigarette tax for a non-tobacco producing state at 18 cents a pack. Governor Haley Barbour, a former lobbyist for the major tobacco companies, has vigorously opposed any tax increases, especially on cigarettes. However, a Barbour-appointed tax study group recommended that the cigarette tax should be increased at least 29 cents.

That has changed the debate in the Mississippi Legislature, because the House has supported some sort of tax increase for four years, but the Senate has always killed the measures. Now the Senate has passed a bill that would increase the tax by 49 cents, which would be used to maintain the fund for the legislative tax credit on car tags, as the most expensive car tags in the country are planning to increase. The House has passed their version of the increase that would make the tax $1 a pack, the money to be used to support public education.

Mississippi has a population of about 3 million folks, in which 27 percent of them are smokers. Many of the proponents of the tax increase will say that the increase will get people to stop smoking, thereby reducing the health care costs of Mississippians in the future. Opponents say that all an increase will do is drive smokers to other states to make their cigarette purchases, thereby taking tax revenues away from the state.

The argument the Senate makes is valid because their increase proposal represents the regional average of cigarettes tax, theoretically making it unattractive for Mississippi smokers to travel across state lines to make their purchases. However, as with both proposals, to target the funds other than offsetting health care costs defeats the purpose of raising them.

We know that total revenues are down and budget decisions have to be made, but to base revenue increases on something that is expected to eventually become diminishing returns is tenuous at best. Focusing on health care, as the federal increase will do, makes more sense. A healthier America, let alone a healthier Mississippi, will free up funds from Medicaid to go to other budget needs in years to come.

Now with the federal government moving faster that the state in increasing tobacco taxes, that may slow down the progress on Mississippi acting on an increase even more. Hopefully, it won't, but if the discussions do move forward, my hope is that it will re-focus on targeting the funds to health care. To compromise and just let the increased revenues go into the general fund will not be beneficial to Mississippi in the long term.