The Bluegrass and Beyond

It’s a rare occasion when Kentucky legislators can save taxpayers money by raising a tax.

Gov. Steve Beshear’s proposal to raise the state cigarette tax by 70 cents a pack is one of those occasions. The proposal is not only good public policy, it’s a financial no-brainer.

It’s also why a year after Beshear first proposed it — only to see House members cut the increase to 25 cents and Senators kill it — it’s worth trying again.

Beshear’s main motivation for trying again is to get much-needed revenue for state government, which faces a $456 million budget shortfall. The governor estimates the cigarette tax increase would bring in $81.5 million this fiscal year and $144 million next year.

But nobody thinks a cigarette tax will solve state government’s money problems. Many people believe Kentucky needs comprehensive tax reform, which would include taxes on services and more taxing authority for local governments.

The big payoff from raising the cigarette tax isn’t the revenue it would bring to state government, but the long-term savings it would bring to Kentucky taxpayers and businesses.

A lot of people seem to understand that. A statewide poll in May by the Herald-Leader and WKYT-TV showed 55 percent of Kentuckians support raising the cigarette tax to $1, while 34 percent oppose it.

Since then, several powerful groups have endorsed a higher cigarette tax, including the Kentucky Chamber of Commerce, the Northern Kentucky Chamber of Commerce and the Kentucky League of Cities.

Kentucky, which in 2005 raised the cigarette tax from 3 cents to 30 cents, still has one of the lowest rates in the region. Among surrounding states, Virginia also has a 30-cent cigarette tax, and Missouri’s is only 17 cents. The tax is 55 cents in West Virginia, 62 cents in Tennessee; 98 cents in Illinois; 99.5 cents in Indiana; and $1.25 in Ohio.

Kentucky lawmakers will get a lot of pressure from border-county retailers, who make big bucks selling cigarettes to bootleggers who resell them in high-tax states. The chambers of commerce are sensitive to putting Kentucky retailers at a disadvantage. That’s why they would prefer a smaller increase than Beshear is seeking.

But those business organizations also recognize that when cigarettes get more expensive, fewer people smoke. And when fewer people smoke, businesses and taxpayers spend a lot less money treating smoking-related illness.

“Health costs are eating us up in Kentucky,” said David Adkisson, president of the Kentucky Chamber of Commerce, who said a survey of the membership showed 80 percent support higher cigarette taxes to discourage smoking. “Employers’ top concern is heathcare costs.”

Smoking rates in Indiana dropped 20 percent when the state raised its cigarette tax from 44 cents to 99.5 cents in July 2007. Other states have seen similar results.

Kentucky leads the nation in most measures of smoking, including smoking by young people and pregnant women, as well as illnesses linked to tobacco use.

Smoking-related healthcare costs in Kentucky total $1.5 billion a year, with lost productivity in the state attributable to smoking worth about $2.13 billion, according to a study by the Campaign for Tobacco-Free Kids. The study used data from government agencies and the Centers for Disease Control and Prevention.

Because many smokers are poor, smoking-related Medicaid expenses in Kentucky cost state government $145.4 million and the federal government $341.5 million a year. The study estimates smoking’s total burden on Kentucky taxpayers at nearly $985 million a year.

Substantially higher cigarette taxes would prompt more adults to quit smoking, fewer kids to start and save taxpayers and businesses a fortune, said Ellen Hahn, a University of Kentucky nursing professor and anti-smoking crusader. “It’s the single most important thing we could do to reduce consumption,” she said.

Hahn warned, though, that a small tax increase won’t be enough to reduce consumption, because cigarette companies will simply cut their prices and profit margins to maintain sales.

In addition to all of the smoking-related deaths, pain and suffering, Hahn said, healthcare organizations estimate that Kentucky could save more than $1.3 billion in long-term healthcare costs with a 70-cent increase in the cigarette tax.

“That’s the piece that people don’t realize,” she said. “People who aren’t smokers say this doesn’t affect me. But it affects everyone. It’s money out of our pockets.”

This entry was posted on December 16, 2008 at 9:46 pm and is filed under Business, Ideas, Kentucky life, Newspaper columns, Politics. Tagged: cigarette tax, smoking. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.