Hike in cigarette tax is again on Legislature’s radar screen
10th May 2011 · 0 Comments
By Christopher Tidmore
Facing health care cuts in the hundreds of millions of dollars, advocates of higher sin taxes have re-launched their campaign to raise the state’s cigarette tax to plug the hole.
Some of the Governor’s own Evangelical Christian allies plan to ask legislators to increase the state cigarette tax by $1.25 a pack. The current state tax is 36 cents.
They are joined by a Louisiana coalition of nonprofit organizations, unions and advocacy groups, pushing lawmakers to pass $940 million in tax hikes. The group, calling itself Better Choices for A Better Louisiana, has asked lawmakers to increase so-called “sin taxes” on cigarettes, gambling and alcohol, while also reversing income tax cuts passed in 2007 and 2008. Most of the proposals would require a two-thirds vote in the legislative session that kicks of this Monday, April 25, 2011.
There is also a group of Louisiana legislators, including Senate President Joel Chaisson, is pushing to boost cigarette taxes by 70 cents per pack, with similar increases for cigars and chewing tobacco. The change would increase the state tax on cigarettes from 36 cents per pack to $1.06. Supporters of this proposal — led by Bogalusa Rep. Harold Ritchie — say it would help reduce tobacco consumption and raise $178 million annually for the state’s budget.
Governor Jindal has vowed to veto any and all tax increases.
In fact, Jindal said last Thursday, that he would also oppose any attempts by the Legislature to renew even a 4-cent portion of the existing cigarette tax, which is scheduled to expire on July 1, 2012. Such a move, in his estimation, would be a tax increase.
“If it requires legislative action, we believe that’s an increase,” Jindal said, adding that revenue from the 4-cent portion has not been built into the administration’s budget forecast for the 2012-13 fiscal year or beyond.
The question, though, remains that if the immediate cigarette taxes were pared with a corresponding long-term income tax cut, popular with both Republicans and Democrats, would Jindal change his mind.
Namely, would phasing out the income tax on retirees, an idea often floated to make Louisiana a retirement haven like Florida, be enough for Jindal to embrace higher cigarette taxes? Would a large long-term tax cut be enough for a taxophobic governor to embrace a short term hike?
Many supporters of Jindal say “no.”
Both the governor’s national GOP reputation and his local re-election support are dependent on his image as a tax cutter.
Critics however, remember that although Jindal ran against the Stelly Plan tax hikes in 2007, as governor would have allowed them to stay in place for several more years, had it been left up to him alone.
Only when the legislative leaders told the governor that they were repealing them in 2008 no matter what did the governor get on board with an immediate repeal of the income tax increases — rather than a phase out over several years.
Jindal changed positions and took credit for the immediate income tax cut — one he originally did not want to take effect until almost his second term.
The idea of a retiree income tax swap in exchange for higher cigarette (or sin taxes) is not new. The previous time a cigarette tax was proposed, a swap was discussed actively amongst legislators, to no avail.
The last attempt to raise cigarette taxes, made by then-State Rep. Karen Carter Peterson, would have raised per-pack state tax from 36 cents to 86 cents, still well below the $1.45 in levies most other states charge. It failed, earning only 45 votes out of the 105-member chamber, a result that Carter-Peterson blamed on the GOP presidential aspirations of Gov. Jindal.
The funds would have plugged hospital budgets, and directed funds to the new biomedical corridor in New Orleans and the Pennington Biomedical Research Center in Baton Rouge. (The presence of the latter earned the tax one of its only GOP supporters, the District Representative where Pennington was located.)
It contained no corresponding tax cuts, though, and as such, the legislature rejected the bill. However, what was unknown by the general public was that some had discussed with Carter-Peterson the idea of linking the Cigarette Tax with a phase out of income taxes on retirees over the age of 60.
And, Carter-Peterson, was open to the idea.
Income taxes on those over the age of 60 bring in just under $200 million to the state each year, roughly the same amount that most cigarette tax proposals seek to earn. Likewise, states with no income tax, like Texas and Florida in particular, have seen a massive influx of wealthy retirees seeking warmer climates, as well as year-round golf and fishing. Louisiana has seen comparatively few of these “snow birds”, despite enjoying much the same climate — and a richer festival culture.
Countless national surveys have put the reason as Louisiana’s six percent top income tax. One Businessweek story outlined how even those born in the Pelican State, but later left, were choosing to live in Texas or on the Florida panhandle, rather than South Louisiana because of the impact of taxes on their retirement incomes.
Even the higher property taxes and more expensive home costs in both states ranked less than the impact of Louisiana’s income tax when weighing their decisions.
The proposal presented to Carter-Peterson would have matched the cigarette tax to the revenues the state currently earns from income taxes on retirees. However, the difference was that while the cigarette tax would take effect immediately, the phase out of the income tax would be stretched over 15 years. Any newcomer who moved into Louisiana, would be exempt from income taxes from day one, but current residents (those who have lived in the state for the last five years) would have to wait for the phase out. (Since all would enjoy the tax cut in under two decades, the phase out versus immediate benefit to migrants passed state constitutional muster, at least according to several experts with whom The Louisiana Weekly spoke.)
Carter-Peterson privately agreed that the concept was intriguing, but argued that the exemption should only be applied to lower income retirees, and potentially not kick in until 65. Supporters of the swap argued that the extra five years were necessary to draw healthy and active retirees, to gain the maximum economic benefit, and maintained that putting an income restriction would defeat the purpose of legislation focused on the investment potential of wealthy retirees.
She ultimately decided not to include the proposal, despite her early interest.
Now, several legislators seeking a simple way to plug the health budget, amidst a $1.6 billion deficit have turned to the cigarette tax indicating to this newspaper that passage is impossible without corresponding tax cuts.
Some of the leading advocates of the cigarette tax on the right also support tax cuts in general.
The Rev. John Yeats, director of communications for the Louisiana Baptist Convention, explained to the AP that he agrees with the governor’s stance against higher taxes for the general population, but he said a cigarette tax hike is targeted at people who are ruining their health.
“Just as the lottery is a tax on those who didn’t do well in math, this cigarette tax increase is a fee on those smokers and their families who will become sick with all kinds of illnesses,” Yeats said. “For many, their smoking-related illnesses are already a liability to taxpayers.”
The Rev. Dan Krutz, executive director of the Baton Rouge-based Louisiana Interchurch Conference, said the push for a higher cigarette tax is rooted in morality. “Yes, it is a tax, but it’s also a moral incentive … for good,” Krutz said.
Some of these religious leaders see an opening for Jindal. Many, including Vincent Bruno of the Christian Party, a Metairie-based conservative religious/political advocacy group, see that a tax swap deal with Jindal is a real possibility.
Others note that Jindal has switched gears before. The governor ran against using one-time money to plug holes in the budget, but this year, $474 million of the $1.6 billion in funds to plug the hole in the deficit comes from one time money — according to the Jindal Administration’s latest proposal.
Col. Vic Lent, host of WSLA 1560 AM’s morning program, told The Weekly that taxes do make an impact on where retirees settle. It did for him.
“When I retired from the military (after service in the Pentagon in Washington), I considered many places to retire. I’m from Florida, and could have moved home. I also considered Utah, because I like to ski.”
“My daughter suggested New Orleans, because she said that she would much rather visit me here, than in Utah. But, what made the difference was that Louisiana did not tax military retiree benefits. If they had, I probably would not have moved here.”
That absence of taxes allowed Lent to eventually spend thousands of dollars in the state, both in homes and leisure. “Getting rid of taxes on all retirees could do the same thing.”
It is worth noting, that following the defeat of Carter-Peterson’s legislation, Mississippi Gov. Haley Barbour, also a likely GOP Presidential candidate, signed an increase raising the per-pack tax in his state to 68 cents. The national average is $1.45 per pack.
Senate President Chaisson said Louisiana should raise its rate at least to equal Mississippi. The tax is $1.15 in Arkansas and $1.41 in Texas. “The Republican governor in Mississippi has agreed to a tax increase,” Chaisson said. “There’s not a reason we shouldn’t do it here.”
Chaisson’s case, though, would be bolstered if he could tell Jindal it is a tax cut as well.
Despite the discussion in Baton Rouge by legislators on the idea, no one has proposed such an amendment as of 72 hours prior to the opening of the legislative session.
This story originally published in the April 25, 2011 print edition of The Louisiana Weekly newspaper.