Tobacco News and Interesting Information

As Gov. Timothy M. Kaine seeks to double the state's tax on cigarettes to get more money for health care, state statistics show that cigarette sales declined after the previous two rounds of tax increases.

State tax officials note that other factors, including anti-smoking campaigns and societal changes in smoking habits, also may have contributed to the decline.

Cigarette packs sold in Virginia in fiscal years 2004-2007 decreased from 719.6 million in 2004 to 617 million in 2005 to 597 million in 2006 and to 581 million in 2007.

The state tax on a pack of cigarettes went from 2.5 cents a pack to 20 cents a pack on Sept. 1, 2004, as part of then-Gov. Mark R. Warner's $1.4 billion tax increase. It then went to 30 cents a pack on July 1, 2005.

Kaine is proposing to increase the state tax to 60 cents a pack on July 1. He estimates that doubling the state cigarette tax would generate an extra $155 million a year to help offset state costs in Medicaid. The state's cigarette tax revenues were $168 million in fiscal 2007, down from $172 million in the preceding year.

Del. Harry R. Purkey, R-Virginia Beach, chairman of the House Finance Committee, says the panel likely will take up Kaine's proposed tax increase this week. He rated its chances as iffy.

While he hasn't polled the committee's members, Purkey said, "I think it has a difficult chance of passing. It has some supporters, but there is an awful lot of opposition from the public as well as the business community."

"Virginia's current cigarette excise tax covers less than half the $400 million in Medicaid costs that smoking creates," Kaine said Jan. 14 in his State of the Commonwealth Address.

"I believe that the taxes on smoking should more closely match the budget costs that Virginia taxpayers incur because of smoking."

Bill Phelps, spokesman for Richmond-based Altria, the parent company of Philip Morris, said cigarette sales nationally have been declining 2 percent to 3 percent a year for the last 10 years. The decline in Virginia has been about 2 percent a year.

Asked if tax increases are the reason, Phelps said, "There are a lot of factors involved." He said some smokers are switching to smokeless tobacco products. Altria recently paid $10 billion for UST Inc., a major manufacturer of snuff.

The governor's proposal comes as Congress prepares to again consider raising the federal tax on cigarettes by 61 cents a pack—from 39 cents to $1—to cover an additional 4 million children under the State Children's Health Insurance Program. President George W. Bush vetoed that increase in 2007.

The American Cancer Society Cancer Action Network says the federal tax increase "would prevent more than 900,000 smoking-related deaths and deter nearly 1.9 million U.S. children from becoming lifelong tobacco users."

Kaine says that even with an increase to 60 cents a pack, Virginia's state tax on cigarettes still would be about half the national average.

Altria and its Philip Morris subsidiary, one of the area's largest employers, oppose the increase.

"We think it's unfair to single out one industry to bear the tax burden, particularly here in Virginia where Altria is a major employer," Phelps said. Altria and Philip Morris employ more than 5,000 people, most in the Richmond area.

"This will have a negative impact not just on the manufacturers, but on retailers as well as tobacco growers," Phelps added.

According to an internal study prepared for Altria, states approved 57 excise tax increases between fiscal year 2003 and fiscal 2007. Only in 16 cases did the states' tax revenues meet projections, the study showed.

Virginia projected a $63 million annual increase in revenue, but the actual increase was $10 million below that, the study showed.

State tax officials said, however, that manufacturers pre-purchased tax stamps before the September 2004 increase to avoid the higher tax, so the figures are not representative.

Including money that tobacco companies are paying the state in a tobacco settlement, Virginia realizes about $460 million a year from tobacco taxes, Phelps said.

Dave DeBiasi, a spokesman for the American Lung Association and other health organizations opposed to smoking, said Virginia's economy is not likely to grind to a halt if the tax increase slows sales. More than 1.2 billion people smoke worldwide, he said.

His group, Virginians for a Healthy Future, is pushing for an 89 cents a pack increase in the state tax, which would bring Virginia up to the national average of $1.19 a pack. While applauding Kaine for his attempt to raise the tax, DeBiasi said 30 cents would not reduce consumption because the cigarette companies likely would absorb the increase.

But an increase of 89 cents per pack would motivate 43,000 Virginia smokers to quit and stop about 82,000 kids from starting the habit, he said.

The Harvard School of Public Health reported in June that "the apparent magnitude of the overall drop in tobacco use in the U.S. may be illusory” because while cigarette sales are dropping, sales of small cigars, roll-your-own tobacco products and moist snuff are rising.