Tuesday, February 24, 2009

Puff the Magic Drag Lived by a Sea (of Red Ink)
by K. Patrick Jensen
Georgia Online News Service

The pleasure of some tobacco-fueled puffs is guaranteed to get a lot more expensive for the state's smokers April 1 and perhaps even more so later if Georgia boosts the "sin tax" on cigarettes.

The Georgia Alliance for Tobacco Prevention, a coalition of anti-smoking groups, aims to continue with efforts to boost the state's tax on cigarettes by $1 a pack even though a new federal law will raise taxes by 62 cents a pack on April 1.

Right now Georgia receives 37 cents a pack and the federal tax is 39 cents. With the new federal tax of $1.01 and a proposed $1.37 Georgia tax, smokers could end up paying $2.38 a pack in taxes to imbibe in their not-so-healthy habit.

Don't expect a smoke-filled room as the issues surrounding the proposal light up a hearing Wednesday of the House Ways and Means Committees Subcommittee on Public Policy and Finance. The hearing is on House Bill 39, which also would boost the cost of smokeless tobacco to 25 percent of the wholesale price, up from 10 percent, but leaves cigars alone.

"I'm sure there will be fireworks going off left, right and center," says Scott Mathews of the American Cancer Society of the hearing. The bill is sponsored by Rep. Ron Stephens (R-Savannah).

Republican legislative leaders earlier in the session spoke against any type of tax increases, including the cigarette tax. And retailers plan to testify against any state cigarette-tax increase.

An estimated one in five Georgia adults and 19 percent of high school-age youth are considered smokers despite four decades of research detailing the health detriments of smoking and second-hand smoke.

Two goals are at the heart of increases in taxes on tobacco – raising public funds and improving public health by reducing consumption, especially among young people. And they're not necessarily in that order although bad economic times brought increased consideration of raising tobacco taxes for states and the federal government.

The feds struck first on the revenue front by boosting the tobacco tax to raise $32.8 billion in the next four years to give the states to cover minors under the State Children's Health Insurance Program, or SCHIP. That's a good thing for the states.

But what's bad for the states is at least 16 of them, including Georgia, Mississippi, Kentucky and South Carolina, were weighing significant cigarette-tax increases to fill budget holes. Georgia's deficit was heading toward $3 billion-ish before the federal stimulus passed with help for finances of all states.

It's uncertain how much the "pass the buck" legislation would raise in Georgia although an estimate from the Georgia State University Fiscal Research Center is $449.2 million. That's a hunk of change for the $2.6 billion-ish hole in budget.

But how real is it?

That number is cited in a Feb. 11 Fiscal Note on House Bill 39. The report goes through the mathematical reasons for the amount but still notes that "there is a good amount of uncertainty."

State Fiscal Economist Kenneth Heaghney said the Fiscal Note did not take into account the federal tax hike, so income would be short of the cited $449.2 million if the total tax boost of $1.62 is figured.

"Anything that raises prices would cause consumers to consume less or find ways to avoid" paying the increase, he said.

A Feb. 20 report by the Georgia Budget and Policy Institute on House Bill 39 doesn't mention the federal cigarette tax rise in citing the $449.2 million figure.

Alan Essig, the institute's executive director, said the report should be rewritten to mention the federal tax hike, but says the money's not the main point anyway. "Basically, the movement to raise cigarette tax is a health issue more than a revenue issue," he said.

Supporters of raising the tax say that every 10 percent increase in cigarette prices reduces the adult smoking rate by 2 percent to 5 percent and youth smoking by 6.5 percent or so, according to studies.

Figures compiled by the Georgia Alliance for Tobacco Prevention estimate the $1-a-pack tax would result in 82,300 fewer youth smokers, 49,500 fewer adult smokers, more than 39,400 lives saved from premature smoking-caused deaths, and $1.9 million in long-term health care savings.

The Alliance – which includes the American Cancer Society, American Lung Association, and American Heart Association – also points out 75 percent of Georgia voters support a $1 boost, especially if it goes to health care.

And certainly the $1.62 combo fed-state tax boost would discourage even more smoking and result in fewer health costs, experts agree.

The Feb. 20 report by the Georgia Budget and Policy Institute points out that raising revenue on tobacco is regressive in that the tax mainly hits those with low incomes who also tend to smoke more than those making more money.

The biggest rise in tobacco taxes came on July 1, 2003, when for the first time in 30 years it rose from 12 cents to 37 cents per pack and for the first time smokeless tobacco was taxed. From 2002 to 2006, cigarette sales dropped 7.8 percent, according to the institute's report, and state revenues rose hitting $240 million in fiscal 2008.

Bruce A. Seaman, a Georgia State University economist who wrote an analysis of the tax hike, agrees the federal cigarette-tax boost to fund SCHIP "is a pretty big increase and would obviously eat into the revenue benefits to the state."

He has not updated figures from his 2003 report but says one concern from a buck a pack increase could be some bootlegging from other states or increased Internet sales from Native American reservations, not even a major factor in 2003.

He points out even with the extra $1 increase, Georgia would still rank low in cigarette taxes. In 2007, its cigarette tax rate ranked 43rd among states.

One issue could be border sales since South Carolina now has a 7 cent sales tax on a pack, 51st in a ranking that includes Washington, DC. South Carolina is considering a 50-cent-a-pack hike.

Jim Tudor of the Georgia Association of Convenience Stores, says his group's stores depend on 40 percent of business from sales of tobacco products.

Georgia is surrounded by states with most having lower tobacco taxes.

A rise in state taxes on top of the federal increase could drive stores and jobs across borders, particularly South Carolina's, he said.

"We've never had such a double whammy before," Tudor said of the federal and state proposals.

Seaman, Essig and others caution on relying on sin taxes to fund state government too much since the point of such a tax is to reduce use of the product. Economists speak of "price elasticity" or that some sales are lost when cigarette taxes are increased. In short, there's a chance of overtaxing to at least get fewer eggs from the golden goose on subsequent tax hikes.

Have no doubt there's still gold in raising the state tax on tobacco whether a dollar or less. But the stronger argument for a tax hike is a moral one preventing smoking and saving lives. The "double whammy" of the fed/state combo would accomplish this big time in a former tobacco-producing state. There would be an economic cost of some jobs and perhaps some trips to South Carolina or other border states.

But since the decision ultimately will be decided by the Republican majority who are in a party trying to regain its brand of being fiscally conservative, don't expect an increase in the state sales tax on cigarettes. After all, the feds did the heavy lifting of raising tobacco taxes; the state will reap that reward with funding for child insurance; the tax rise will cut consumption saving lives anyway; and GOP candidates can point to those tax-and-spend Democrats in Washington as a campaign issue.

Meanwhile, Essig observes month after month while other Georgia revenues decline, the amounts raised by alcohol and tobacco continue to rise. "I guess it's true that during rough times smoking and drinking go up," he said.

K. Patrick Jensen is a former editor at The Atlanta Journal-Constitution who writes about faith and suburban issues.   [full bio]

Editor's note: Hello, Georgia.

Two of our stories today offer perspectives into the quandary that's created when government, morality, money, and hard times collide.

But, it's not all about sin today.

Consider a story about farmers who have expanded into Africa just to stay in business. In the tough world of agriculture, sometimes it's all about survival.

Columnist Hollis Gillespie has 'fessed up to a sin, too. Hey, it's from childhood, but it's still a confession.

As always, we'd like to hear from you. GONSO is an enterprise founded and staffed by more than two dozen leading journalists and media executives in Georgia. We're providing content free -- for a limited period. Newspapers, broadcasters, bloggers and websites are welcome to use our articles -- please credit the writers and the Georgia Online News Service.

Send your comments and any story ideas to executive editor John Sugg at john.sugg@georgiaonlinenews.org. You can also call us at 800-891-3459.

Today's GONSO

Puff the Magic Drag Lived by a Sea (of Red Ink)

by K. Patrick Jensen
Some caution against relying on sin taxes to fund state government too much since the point of such a tax is to reduce use of the product. But others note that more money is raised in tough times by smoking and drinking than when times are good.

Full Story

Some Georgia Farmers Look to Africa for their Future

by Nadirah Z. Sabir
Once a cornerstone of national and community economic growth, black American farming today is in a "miserable" state, said Georgia-based organic farmer Rasheed Nuri, one of hundreds of U.S. black farmers who have tried to expand into Africa. To stay in the ag game, many are looking to commercial production: soybeans and cattle as opposed to family farming.

Full Story

Georgia Power and the Power of Paying in Advance

by Hollis Gillespie
If the utility is anything like our columnist in her youth, we should ask to pay for these new nuclear power plants when they’re finished, not before construction has begun.

Full Story


The Reality is Outpacing the Distortions About Sunday Liquor Sales

by Jim Tudor
The president of the Georgia Association of Convenience Stores outlines a bill that would empower voters to decide when and where alcohol is sold.

Full Story

Tomorrow's Budget
How will the housing bust affect a renaissance in downtown living in cities across Georgia?
by Jeanne Bonner
Bill Overhauling State's Transportation Lands in Senate Committee
by Maggie Lee
Straight out of Georgia: Madea is a deserved hit
by Eleanor Ringel Cater
Again, the "frivolous lawsuit" card is played
by Jay Cook

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