Herald-Leader Editorial

Hike in tobacco tax makes sense; Raise coal-severance tax to aid E. Ky

November 20, 2012 

If ever a pair of taxes screamed "raise me" it's Kentucky's cigarette and severance taxes.

Gov. Steve Beshear's Blue Ribbon Commission on Tax Reform heeded the call on tobacco but whiffed on the severance tax.

The commission's recommendation, made Monday, to raise the state tax on a pack of cigarettes from 60 cents to $1 would produce an additional $120 million the first year for the state to spend on such things as education.

The bigger payoff would come in health-care savings over time as fewer Kentuckians smoked.

Any hopes Kentucky has of achieving broad prosperity depend on shaking off our reputation as the land of the sick and the home of the obese.

What do prospective employers think when they read, as they did last week in a Centers for Disease Control and Prevention study, that Kentucky had the nation's second-highest increase in diabetes over the last 15 years — 158 percent — or that almost 1 in 10 Kentuckians has diabetes?

They think they'd rather be almost any place else.

Type 2 diabetes is part of a grisly smorgasbord of disabling ailments that studies have linked to smoking. Studies also show that most smokers start by age 18 and that price increases are especially effective in deterring youngsters from smoking.

The commission recommended commensurate tax increases on other tobacco products.

Polls through the years suggest that Kentuckians will support higher tobacco taxes if the money goes for a good cause such as education. At a buck a pack, Kentucky would still be taxing cigarettes at a lower rate than the national average of $1.45.

The legislature should get behind a tobacco-tax increase because it makes economic sense.

Raising the severance tax on coal, natural gas, oil and other extractive industries to the same rate as West Virginia's also makes economic sense, but at an earlier meeting the commission rejected that idea.

There was no debate, so we don't know what the thinking was. If the commission wanted to preserve a competitive advantage for Kentucky's coal industry, that's silly.

Kentucky coal can only be mined in Kentucky. Having to pay an extra 0.5 percent won't deter a profitable mining operation. (Kentucky collects 4.5 percent of gross value in severance taxes while West Virginia's base rate is 5 percent plus an extra severance tax to shore up workers compensation.)

On the other hand, if the commission was thinking that an increase in severance taxes, especially on coal, should go, not into the state's General Fund, but into a trust fund for coal counties, that makes sense.

The Appalachian coal industry is expected to sharply decline. Increasing the severance tax and dedicating a portion of it to an economic development trust fund would provide an ongoing revenue stream after the resource is depleted. Rather than as part of tax reform, that decision belongs in a discussion of regional economic development — the sooner, the better.

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