A group of the state's staunchest supporters of tobacco growers on Friday relaxed its long-standing opposition to increasing the cigarette tax.
Traditionally, the Kentucky Farm Bureau, a large and powerful farm lobby, has opposed any tobacco tax increase whatsoever. But at their annual convention in Louisville, its delegates overwhelmingly approved a new resolution encouraging elected officials to oppose any tobacco regulation or tax "that would put Kentucky at a competitive disadvantage with surrounding states."
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"We're not naming a number," said Mark Haney, Kentucky Farm Bureau first vice president, of Nancy. "We're not advocating any tax increase, but if one is proposed (the new policy) gives us some flexibility to talk about it."
The move comes at a politically significant time — with the state government scrambling to fill a new $456.1 million hole in its present budget, Gov. Steve Beshear might be forced again to consider increasing the cigarette tax.
Haney said the delegates thought the change was important to ensure that farmers will be part of any dialogue.
"Tobacco taxes and excise taxes are very important to our organization, but other taxes are equally important as well," Haney said, pointing to property taxes and the sales tax exemption on farm products. "We don't want other things that we have worked so hard to keep and maintain put at risk."
The shift by the Farm Bureau could give Beshear political wiggle room: Although Kentucky is tied at 30 cents per pack with Virginia, taxes in other nearby states are higher. West Virginia's tax is 55 cents; Tennessee's, 62 cents; Illinois', 98 cents; and Indiana's, 99.5 cents; and Ohio's, $1.25. However, some nearby states have significantly lower rates: South Carolina, 7 cents; Missouri, 17 cents; Mississippi, 18 cents.
The national average tax is about $1.18 per pack. The highest state tax is New York's $2.75 per pack, and additional local rates raise the tax to $4.25 a pack in New York City.
Beshear is expected to present a plan next week to address the latest state budget shortfall.
He unsuccessfully proposed in this year's legislative session to raise Kentucky's cigarette tax to $1 a pack. Also, the Senate this year rejected a House plan to raise the cigarette tax by 25 cents to reap about $230 million over two years for the state's coffers.
So far, Beshear has declined to say whether his new budget plan will include a cigarette tax hike, though he has said he expects to seek an increase in it again sometime in his administration.
Rep. David Watkins, a Democrat and physician from Henderson, has prefiled a bill for the 2009 state legislature to raise the tax to $1. He says that would raise about $200 million a year for the state.
The proposal has its opponents and proponents.
A cigarette tax hike is a regressive tax that hurts those who purchase cigarettes, forces layoffs in the retail business and often does not produce the state revenues projected, said Thomas A. Briant, executive director of the National Association of Tobacco Outlets in Minneapolis.
"Generally we oppose any tax increase, but a 70-cent jump would cause an enormous downturn in sales at the retail level and would mean loss of jobs," Briant said Friday in a telephone interview.
Asked if his group could support a lower tax increase, Briant said, "Generally, we oppose any tax increase."
Briant, who said he never has smoked because his high school debate teacher forbade it, said he understands Kentucky's financial problems but the state "should spread the burden around more widely than focusing on tobacco products.
"For example, why doesn't it look at more taxes on wine, liquor and beer?"
Briant also said he is not convinced that an increase in the cigarette tax will increase the health of Kentuckians.
"People usually don't quit smoking when the tax goes up," he said. "They just usually look elsewhere for their cigarettes, like on the Internet or crossing state borders."
But mental health advocate Sheila Schuster and the Campaign for Kentucky Tobacco-Free Kids contend that a higher cigarette tax would be a win-win situation for the state treasury and Kentuckians.
"A higher tax may mean that fewer packs are sold but actual revenues do come in," Schuster said. "It would take many years for a higher tax to lead to diminishing returns."
Schuster also said she thinks smoking is an addiction and a gateway for many youth to develop other drug use.
She pointed to a study by the Campaign for Tobacco-Free Kids that showed that every 10 percent increase in the price of cigarettes reduces youth smoking by about 7 percent and overall cigarette use by about 4 percent.
The campaign said a 70-cent increase in the state cigarette tax would prevent more than 57,000 Kentucky kids from becoming smokers and produce more than $1.3 billion in long-term health care savings.
A higher tax would save more than 27,800 Kentucky residents today from premature, smoking-caused deaths and spur more than 36,000 current adult smokers to quit for good, it said.
Will Snell, University of Kentucky tobacco economist, said any tax increase will cause a decline in consumption and thus cause leaf demand to fall, which could hurt Kentucky tobacco producers.
If taxes increase as well on smokeless products such as snuff and chewing tobacco, that could hit growers in Western Kentucky harder, since most dark tobacco is consumed domestically, he said.
"But with the majority of Kentucky burley now being consumed overseas, along with the high share of imported leaf in U.S. cigarettes, a tax increase in Kentucky now has a smaller adverse impact on burley tobacco demand than it did in previous decades," Snell said. "A larger concern for Kentucky tobacco growers will be how budget shortfalls across the nation at both the state and federal level impact policy-makers' decisions on tobacco tax policy."