Are U.S. States unfairly burdening smokers by taxing cigarettes to cut budget deficits?  Historically, states have used part of the revenues from cigarette sales to help smokers quit or to pay for their health care. But now, many states are proposing an additional cigarette tax to bail them out of the fiscal crisis without earmarks to help people stop smoking.

Sure, smokers are an easy target. There is little political opposition and health advocacy groups consider it a bane to society.  But does it make it right? Are they being singled out?

In more than 20 states, budget shortfalls are pushing more to look to tobacco for revenue. Even the tobacco-producing states are considering it.

According to the New York Times, “in the South, where such taxes have been lower than in the rest of the country, Arkansas has nearly doubled its tax, to $1.15 a pack, and Kentucky’s will double, to 60 cents, on April 1.

Increases are also under consideration in other tobacco-growing states like North Carolina, South Carolina and Georgia. With estimated state budget shortfalls nearing $50 billion, opponents of smoking see an opportunity to make headway with the most reluctant lawmakers.

A 10 percent increase in the price of cigarettes reduces consumption by 3 percent to 5 percent, according to the Centers for Disease Control and Prevention, and deters young people from picking up the smoking habit.

Tobacco industry representatives have argued that tobacco taxes unfairly burden smokers, who are mostly working class or poor, and jeopardizes jobs at retailers like convenience stores, where more than 30 percent of total sales can come from cigarettes.

“Many of these states are asking the very definition of Main Street to bail out state capitals,” said Frank Lester, a spokesman for Reynolds American, which makes Camel and other major brands. “It’s just another bailout.”

States whose cigarette taxes are already high are also considering increases. In Oregon, now at $1.18 a pack, Gov. Theodore R. Kulongoski has proposed a 60-cent increase. In New Jersey, Gov. Jon Corzine is asking the Legislature for a 12.5-cent increase over the current $2.58. New York has the highest state tax on cigarettes, $2.75 a pack.

In Mississippi, cigarette tax increases in surrounding states have helped dampen fears that people would cross state lines to buy cigarettes. After a tax study commission appointed by Governor Barbour recommended an increase, he reversed his opposition but warned that the tax should be viewed as a matter of health policy, not a generator of revenue.

Bill Phelps, a spokesman for the Altria Group, the parent company of Philip Morris, argued that states often overestimated revenues from cigarette tax increases. From 2003 to 2007, there were 57 state tax increases, Mr. Phelps said, and in 41 cases they fell short of projections.

“We don’t think it makes a lot of sense to fund what are often important government programs with a revenue source that is in decline,” he said. “Just in the last 10 years, sales have declined an average 3 percent a year.”

But Frank J. Chaloupka, an economist and director of the Health Policy Center at the University of Illinois, Chicago, said cigarette taxes had not reached the threshold of diminishing returns. “We haven’t yet seen a case where if you raise taxes you don’t raise revenues,” Mr. Chaloupka said.

New Jersey did see a decline in revenue after its last tax increase, he said, but other factors, like a comprehensive smoke-free-air law that went into effect before the increase, drove down consumption.”

On top of all this, a 62-cent increase in the federal cigarette tax will go into effect in April.  The tobacco industry believes this will overburden smokers and drive down state collections. But the federal increase does not seem to have derailed state efforts, in part because smokers cannot avoid it by crossing state lines.

The debate will continue but the bottom line is that states will come down to the last day of the session, when they realize they have to get the budgets down and they need X dollars.”

What vice will be taxed next?  Beer, Wine, Liquor?

source: NY Times

New York State has declared war on the Indians.  Governor Paterson has demanded  taxes on Indian cigarettes retailers. The issue is that Indian tribes are allowed to sell cigarettes untaxed to Native Americans but are supposed to collect taxes on cigarettes and tobacco products to non-Indians.

With unemployment down and tax receipts plummeting, the governor is looking to close a huge budget gap.  And now he is ready to scalp the Indians to get his hands on the projected tax monies that the Indians has previously never charged. 

“It hasn’t been collected in a very long time, so it’s obviously going to be difficult, but we think we took a step [Monday] that is a firm step in the direction of making that happen,” Paterson said.

The new law will prohibit manufacturers from selling tobacco without a state tax stamp to any wholesaler who won’t promise the cigarettes won’t be resold tax-free by New York tribes.

Violators could have their licenses revoked and could be prosecuted criminally for perjury or filing a false instrument, the governor said.

Lawmakers say the law could mean hundreds of millions of dollars a year going to the cash-strapped state. Paterson said it could be closer to $62 million. The state excise tax is $2.75 a pack.

The Inidan tribes see the law as a threat to their sovereignty and have threatened possible legal action.

“Attacking tax-free commerce in our territories is short-sighted and disastrous for us and all of western New York,” said Barry Snyder, president of western New York’s Seneca Nation.

“The issue here is not cigarettes, but the protection of the Nation’s treaty rights. We will do what it takes at the right time to protect those rights.”

The state of New York, like many other states are in a “state of panic” in trying to balance the budget.  Looks like Uncle Sam will be the only thing to bail out many states.

Gov. Paterson - leave the Indians alone!