Taxes on cigarettes gain support from tobacco groups

Source from:  By Walt Reichert/Sentinel-News Associate Editor 01/19/2005

In what may be a sign of the Apocalypse, tobacco farmers are encouraging the Kentucky General Assembly to increase the state's tax on cigarettes. Tobacco farmers and farm groups hope the money raised would be used by the state to offset money they had expected to receive at the end of December from the Phase II Tobacco Settlement. Because of a North Carolina judge's ruling last month, that money may be months in coming - or it may not come at all. For at least a decade, tobacco farmers in Kentucky have fought tax increases on cigarettes because they felt it would hurt Kentucky's principal cash crop at a time that it was already beset by troubles from health advocates, fewer smokers and increasing imports of tobacco for use in cigarettes. But that was before cigarette companies filed a lawsuit to get out of paying farmers Phase II payments for 2004 following Congress' passage of the tobacco buyout bill in October. A North Carolina judge ruled in the companies' favor in December and now another judge is looking at an appeal of that decision. Farmers say they were counting on that money and feel betrayed by the tobacco manufacturers. Shelby County tobacco farmer Doug Langley said farmers' support for a cigarette tax increase may be an acceptable trade-off to get the state to make up the $124 million farmers had expected from Phase II. "I know you never expected to hear me say this, but a cigarette tax may be one way to pay for this," Langley said. "For years we've fought cigarette taxes and kept them low for the companies, and what have the companies done for us? I don't care about the companies anymore." Burley Tobacco Growers Cooperative CEO Danny McKinney said his organization would support a cigarette tax increase if at least some of the money will be used to replace Phase II money. "I have yet to talk to a legislator who does not realize that farmers are in tough shape," McKinney said. McKinney said the Coop would oppose using Phase I money, as some have suggested, to replace the 2004 Phase II payment to farmers. Phase I money has been used by the state to help farmers diversify their operations. Because Phase I money is substantially less than Phase II money, the state would have to use Phase I money for the next several years to make up the difference. "I think we need to leave Phase I intact," McKinney said. "We need to help farmers who might be overdrawn in their checking account today." Tax plans At 3 cents per pack, Kentucky has the lowest cigarette tax in the nation. Gov. Ernie Fletcher has touted an increase in the state's cigarette tax as part of his tax modernization plan. That plan would raise taxes on cigarettes but cut taxes on income. Two years ago Fletcher proposed a 26 cent-per-pack increase but has not named a specific figure for this session of the General Assembly to consider. Reports are that the governor will consider a tax increase of up to 40 cents per pack. Health care advocates have asked for a tax increase to cut the rate of smoking by teens and adults in Kentucky. The American Lung Association recently gave the state an F grade for its efforts to control smoking. The Lung Association said Kentucky leads the nation in the number of adults who smoke (30.8 percent vs. 22.5 percent national average) and the number of high school students who smoke (32.7 percent vs. 23 percent national average). A bill has been pre-filed by Rep. Jon Draud, R-Crestview, that would increase the state's tax on cigarettes to 78 cents per pack. That increase would raise about $280 million in revenue. State Rep. Brad Montell said he would support a cigarette tax increase to help offset farmers' loss of Phase II funds, but is undecided about how large an increase to support. "There are lots of ideas out there but nothing is set in stone," Montell said. "But I think the legislature is committed to make sure what was promised to farmers comes about." Langley said some farmers would like to see the state use revenue from a cigarette tax increase to pay farmers Phase II monies through the program's intended termination - in 2012. Then the money not paid to farmers would go back into the general revenue fund. Montell said that while he has not decided if he would support such a plan, it "would be a tough sell." "It would be hard to ask the state for additional money for farmers on top of buyout money when we're having to cut back on lots of programs across the state," Montell said. Whatever cigarette tax increase is put on the table, Montell said he is not willing to vote for a stand-alone tax increase. He would vote for a cigarette tax increase only if an offsetting tax cut - in income tax, for example - is proposed. Before deciding on how much to increase the cigarette tax, legislators will have to determine what they want the cigarette tax to do - increase revenue or cut down on smoking, Montell said. "If we want to cut down on smoking, we need to make it higher, like $1 per pack," Montell said. "But if we want to increase revenue there's a point of diminishing return on increasing taxes." Enditem