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Tax, tax, tax
that cigarette!
by Peter Galuszka
In political philosophy, Virginia's leadership has teetered
for centuries between brilliance and backwardness. For
instance, the state that gave us Jeffersonian Democracy
also gave us Massive Resistance. And while the Old Dominion's
fiscal conservatism has proved an asset, going overboard
with the mantra of "no taxation" can be stubbornly
stupid and, in some cases, deadly.
Consider state taxes on cigarette packs.
Virginia levies the lowest per-pack tax in the U.S.,
a meager 2.5 cents, although some localities tack on
more taxes. North Carolina, a much bigger tobacco state,
charges double Virginia's state tax. Going to extremes,
as it usually does, New York City has started assessing
a $1.50 per-pack tax on top of an equal tax charged
by New York state, making a pack of smokes in the Big
Apple a whopping $7.50.
Why is this suddenly important? The
state's nearly $2 billion budget crunch, that's why.
Throughout the administration of Republican Gov. Jim
Gilmore, the popular (and populist) view was no taxation.
It seemed OK at the time. The stock market was roaring
and high-tech startups were sprouting everywhere. Even
though state spending was rising dramatically, not raising
taxes took on the same illusory appeal as a New Economist
hawking the bogus view that profits no longer matter.
Well, that was then. As it has in every
state, the economic downturn has minced state budgets.
In Virginia, one result is the highway mess that our
cover story explores. The Old Dominion is straining
to meet other basic needs such as educating its young.
Just as schools are overcrowded and teachers are scarce,
schools statewide are facing massive cuts. Mary Washington
College in Fredericksburg, for example, is being forced
to drop a 200-student master's program in education.
In Richmond, Democratic Gov. Mark R. Warner is scrambling
to manage the budget mess he inherited and to find new
revenues.
An obvious place to look? Cigarette
taxes. Let's do the math to show what a raise could
do. Last year, at the 2.5-cent rate, the state raised
a paltry $15 million. But, let's say that the state
raises the levy to about 60 cents per pack - about the
middle of the range for such taxes among all 50 states.
That would generate about $320 million more in taxes
- not enough to get the state back in the black but
helpful nonetheless.
So why not get on with it? A recent
poll shows that more than 60 percent of Virginians surveyed
thought raising cigarette taxes is a good idea. State
health groups urge that the tax be raised. It isn't
exactly news to officials in Richmond that smoking kills.
After all, Virginia was one of 46 states that sued and
won big from the major tobacco companies on health claims.
Some of the state's $4 billion settlement is being used
to wean smokers away from the weed and eradicate the
cancer and lung disease that smoking causes.
Hiking tobacco taxes is complicated
by money and stubbornness, however. Cigarette maker
Philip Morris U.S.A. is one of the biggest companies
operating in the state, including 6,300 workers at the
world's largest cigarette plant in Richmond and elsewhere.
In the last two years, the company gave more than $663,000
to state and federal elected figures. Gov. Warner's
campaign last year received $77,584 from Philip Morris
with another $25,000 thrown in for his inauguration
festivities.
So far, Warner has waffled on whether
to hike the cigarette taxes, but a spokeswoman says
that cigarette company money has no influence on any
stance he takes on tobacco taxes. Philip Morris says
it has no position on hiking excise taxes because there
isn't a formal proposal. But, says a spokesman, the
company represents $1.7 billion in the state's economy
and that "we don't believe that balancing the budget
with excise taxes is sound economic policy."
Another curious issue is the logic of
citizens who oppose hiking such taxes. The editorial
page of the Richmond Times-Dispatch is filled with their
commentary. Their chief argument is that smokers shouldn't
be singled out for extra taxes. Why not also hike taxes
for alcohol or buyers of sport utility vehicles, they
ask?
Well, the short answer is tobacco has
no other purpose than to soothe the smoker with addictive
chemicals while seriously threatening his or her health.
Period. Not only would hiking cigarette taxes help ease
budget woes, it might save more than a few lives.
Return to Virginia Business -October 2002
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