State poised to raise cigarette tax
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By Peter Hirschfeld VERMONT PRESS BUREAU - Published: May 26, 2009
MONTPELIER – Smoking, already dangerous for your health, is about to get a lot worse on the wallet as well.
Less than two months after a federal tax hike sent cigarette prices soaring by 62 cents per pack overnight, state politicians are poised to impose yet another financial hit on the approximately 83,000 smokers inhabiting in the Green Mountain State.
"It's lunacy," says Chris Moreau, proprietor of Fired-Up Tobacco Shop in South Barre. "They may as well outlaw them – I'll find another business. But this is getting insane with one tax after another."
Politicians of all stripes have targeted nicotine addicts in their revenue-generating plans this year. The Legislature's budget proposal would increase the per-pack state tax by 25 cents. Along with tax increases on other tobacco products, the plan would raise about $4.5 million to plug revenue shortfalls.
Gov. James Douglas did them one better, proposing a 45-cent per-pack tax increase for cigarettes. His plan raises $7 million and comprises the lion's share of his $13 million total revenue package.
"I think they're being hypocritical," says Val Louras, owner of Sam Frank, a Rutland tobacco distributor. "They say the reason for raising the tax is so people will quit smoking, yet they know it's an addiction, and more times than not people will do anything to get their cigarettes."
Vermont smokers already pay among the highest state tobacco taxes in the nation. The $1.99 state assessment on cigarettes, combined with the new federal fees, has put total per-pack taxes at $3 per pack. The latest proposals would spike the cost even further.
Much of that money will come from those who are least able to afford it. The smoking rate in the general population in Vermont is about 17 percent (down from 22 percent in 2000). But a full 35 percent of Vermonters living below 125 percent of the federal poverty level say they smoke. Low-income people comprise nearly a third of all Vermont smokers.
The addiction can be a serious variable in household finances. A pack-a-day habit now costs about $2,500 annually. More than a $1,000 of that goes to state and federal taxes.
"The state already collects a huge amount of revenue from a segment of the population that can least afford it," says John Singleton, director of communications for Reynolds American, which owns the cigarette manufacturing giant R.J. Reynolds Tobacco Company.
Vermont took in close to $60 million in fiscal year 2008 from state taxes on all tobacco products. The money helps fund the State Health Care Resource Fund, as well as Catamount Health.
Rep. Anne Donahue, a Northfield Republican, says she opposes the proposed tax hikes because they target a vulnerable population of residents suffering from mental illness.
"There's actually a lot of study and lot of information on cigarette use and it's estimated that about 50 percent of the cigarettes smoked are smoked by people with a serious mental illness," Donahue says.
The volume of cigarettes smoked by the mentally ill, Donahue says, accounts for their primacy in the marketplace. And quitting, according to Donahue, isn't always a viable option for them.
"Addiction to nicotine for a person with mental illness physiologically has differences," Donahue says. "… So quitting smoking, for a person with a mental illness, is not the same."
Moreau says if the state wants to increase the tax revenue it derives from cigarette sales, it ought to lower the tax.
"Raise the tax, and you're going to see people flooding into New Hampshire," he says. "Lower it, and you're going to have tens of thousands of people from neighboring states coming here. I promise you revenues go up – and not just for cigarettes either."
Louras says increases in cigarette taxes are almost always accompanied by a corresponding drop in total sales. A 45-cent per-pack increase, she estimates, would see her business drop 25 percent.
"They're assuming sales will stay the same, and they're crazy," Louras says. "It's almost getting comical at this point."
Singleton says smokers make for easy targets. Their dwindling numbers make them a less formidable voting bloc.
"If a politician is looking for a source of revenue, well here's an avenue that only irritates 17 percent of your population," Singleton says. "But to continually go after the same population year after year is, we think, patently unfair."
The question now seems to be not if state cigarette taxes will go up, but by how much. House Speaker Shap Smith said this week that he's reluctant to sign onto the governor's more pronounced tobacco-tax increase.
Smith said he's less concerned about the regressive nature of the tax than the long-term revenue impacts higher cigarette fees might have.
"Typically when you raise cigarette taxes, the amount of revenue you get from them goes down each year thereafter, so they are not really a stable financial source," Smith said. "We put those taxes on the table because we understood that it was something that perhaps the administration would be willing to use for revenue. But I am uncomfortable raising the cigarette taxes more than what was proposed in the Legislature's budget."
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