Tax Taboo

Could this be the year that state lawmakers raise the cigarette tax?

| June 12, 2002
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- Alex Maness
When the left-leaning Common Sense Foundation recently came out against raising cigarette taxes in North Carolina, health-care activists were dismayed and surprised.

Dismayed because at 5 cents a pack, North Carolina's cigarette taxes are the third lowest in the nation. Surprised because the foundation's argument--that higher cigarette taxes fall unfairly on the poor--is the same one the tobacco companies have made whenever the issue's come up in the past.

So what gives? Why in a year when the state budget shortfall is looming in the billions, would anyone object to raising North Carolina's historically low tax on cigarettes? And why would an organization that advocates for low-income citizens stray into territory staked out by a major industry?

Chris Fitzsimon, the foundation's director, says his group's position on cigarette taxes comes out of its commitment to a more progressive tax and budget process in North Carolina.

"There seemed to be a lot of very well-intentioned people forgetting the core principle that we can't ask poor or working people to bear any more of the budget burden," he says. "They've been asked time and again while the corporations haven't done anything. There are alternatives." For example, Fitzsimon says, closing just one corporate tax loophole--the one given to North Carolina banks--would raise $100 million. Ending subsidies to tobacco manufacturers that export cigarettes would save $8.7 million.

Anti-smoking activists counter that while cigarette taxes do fall more heavily on low-income citizens, so do the marketing tactics of big tobacco companies.

"We have two choices," says Adam Goldstein, associate professor of family medicine at UNC-Chapel Hill and medical advisor to the statewide Survivors and Victims of Tobacco Empowerment Project. "We can allow the industry to raise the price of cigarettes and they can pocket the profits. Or the state can raise the price and more people can quit smoking."

Numerous studies have shown that when cigarette prices go up, smoking goes down, Goldstein says--especially among young people and the poor. The accepted formula is that when costs-per-pack go up by 10 percent, youth smoking drops by 7 percent and adult smoking by 4 percent.

And there are other reasons to support a higher tax-per-pack. "When the price on our cigarettes is 50 percent lower than in most other states in the country, it promotes smuggling and crime," Goldstein says. "So if we really care about what's happening in poor communities, we should raise the tax closer to what it is in other states."

Hiking cigarette taxes used to be a closed-door issue in the halls of the General Assembly. But this year, the budget crunch (a good portion of which is due to spiraling health-care costs) has sparked new interest in the idea.

At press time, at least five tobacco-tax bills were introduced in the legislature. Among them, a House measure proposed by Rep. Bob Hensley (D-Wake) would raise the tax from 5 to 55 cents a pack. The $350 million that would generate ("which, coincidentally," Hensley says, "is exactly the amount the governor says the lottery would raise") would be targeted solely for public education.

Rep. Paul Miller (D-Durham) introduced a similar bill that would raise the tax from 5 to 25 cents per pack and funnel the money into a trust fund for public schools. Two other bills proposed by Durham lawmakers Rep. Mickey Michaux and Sen. Wib Gulley--both Democrats--would raise the tax to $1 per pack and 55 cents per pack, respectively, and send the money to the general fund. It's estimated that each additional penny per cigarette pack adds up to $7 million in revenue for the state.

But with Republicans digging their heels in on a "no taxes" pledge, political insiders say it's not clear that any tobacco-tax proposal will get very far--especially in the closely divided House. "It's going to be a rough road," admits Michaux. "Eventually we may end up with an additional tax on cigarettes. It might not be as high as $1."

To help nudge other lawmakers along, the American Association of Retired Persons recently conducted a survey to gauge voter support for raising cigarette and alcohol taxes in North Carolina. The poll found 41 percent of voters would be more likely to back candidates who support raising the cigarette tax to generate funds for health-care services. Overall, voters were split 50 percent to 46 percent in favor of raising cigarette taxes. (The survey also found seven in 10 voters "strongly support" a tax on alcoholic beverages to raise money for health care).

Another survey, by the N.C. Center for Health Statistics, found that 43 percent of citizens asked would support a tax increase of up to $1 per cigarette pack if the money were used to support teen smoking prevention.

From a simple "no way" status, the cigarette tax issue has become surprisingly complex. "You have all of these countervailing winds," says Ferrel Guillory, director of UNC-Chapel Hill's Program in Southern Politics, Media and Public Life. "You have groups that are normally thought of as liberal, like the Common Sense Foundation, coming out against a cigarette tax. You've got Republicans saying 'no' to tax hikes, but then there are some representing suburban constituencies who would be open to it. The debate's full of contradictory impulses."

Not surprisingly, tobacco companies are disappointed to see that new life's been breathed into the tax issue.

"We recognize that states are having a difficult time and these budget deficits have to be covered in some way," says John Singleton, public affairs director for R.J. Reynolds Tobacco Company. "But the bottom line is, it's tax profiling if you think you're going to balance your budget on the backs of smokers. We don't think it's good fiscal policy."

So what are the chances the legislature will raise the cigarette tax this year? Slim, says Guillory, but not because of the tobacco industry's clout. The real problem is partisan gridlock in the legislature that's been made even worse by the ongoing courtroom battle over redistricting.

"Fiscally, health-wise and budget-wise, all of it argues for putting the tobacco tax on the table," Guillory says. "The problem is, how do you do that when you have Republicans opposed to the whole issue of taxes?"

Others are more hopeful. "Running from this issue is no longer a solution," says Peg O'Connell, board chair of N.C. Prevention Partners, a statewide health advocacy group. "Conventional wisdom is this is not the time for a cigarette tax increase. But when the heck else would it be?"

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