Questions about cigarette tax proceeds

Researchers say proposed tobacco tax increases not accurate

The Jindal administration told legislators in mid-March that nearly tripling the state’s cigarette tax and raising rates on other tobacco products would generate $370 million for state government.

However, questions are emerging about whether that figure is realistic.

The Public Affairs Research Council of Louisiana, a Baton Rouge-based public research group, said Gov. Bobby Jindal expects a $1.05 per cigarette pack increase to generate an additional $277 million a year in excise taxes.

“The administration may be using an optimistic figure for the revenue gain,” PAR said.

Greg Albrecht, chief economist for the Legislative Fiscal Office, said he told the Jindal administration that he arrived at roughly $200 million when he crunched the numbers on tobacco tax increases.

“I told them, ‘Way too high, can’t get there, don’t know what you’re doing,’ ” he said.

No response was given over two days to repeated requests for Tim Barfield, executive counsel for the state Revenue Department, to discuss the criticism of the tobacco tax projections.

The revenue department’s communications director, Douglas Baker, said by email that the projections are based on revenue generated in 2011 coupled with adjustments for future years.

The tobacco tax increase is part of the governor’s pitch for replacing nearly $3 billion that would be lost by eliminating the state’s personal income and corporate taxes.

Additional revenue would be generated by increasing the state sales tax from 4 percent to 6.25 percent and putting a tax on previously untaxed services such as vet bills and cable television.

The current state tax on a pack of cigarettes is 36 cents. Two years ago, state Rep. Harold Ritchie filed legislation to renew an expiring 4 cents of the 36-cent tax, tack on an additional 70 cents and raise the taxes on other tobacco products.
The governor fought him.

Now the governor is backing a near tripling of the tax on cigarettes and an increase in the variable rates of other tobacco taxes to the rate of 68 percent of the manufacturer’s price.

“It’s like, dude, what are you doing? One year, you’re against it, and now you’re for it,” state Rep. Austin Badon said.

Badon, D-New Orleans, filed House Bill 235 to raise the cigarette tax by $1.05 a pack, the same increase the governor embraces.

However, Badon wants the money to go to health care and to the Crescent City Connection.

Jindal wants the money to go into the state’s general fund, which is used to pay for health care, education and other public expenses.

Financial support for the connection — twin cantilever bridges over the Mississippi River in Jefferson, Orleans and St. Bernard parishes — is mired in uncertainty.

A judge recently called for a new referendum on the extension of tolls, resulting in the bridge’s lights being shut off. A nonprofit organization volunteered to temporarily pay the light bill.

“In order to keep it lit up and part of the skyline in New Orleans, it’s going to need a revenue stream,” Badon said.

State Rep. Kirk Talbot, R-River Ridge, filed House Bill 304 to increase the state cigarette tax to 60 cents a pack.

Talbot said he filed the legislation as an extra vehicle in case parts of the governor’s tax package flounder in the session that starts April 8.

Religious leaders, PAR and the Louisiana Association of Business and Industry have raised questions about Jindal’s tax plan.

Talbot said bankers are opposed to the plan because they would have to pay a higher sales tax rate.

“Obviously, with the clergy coming out against it, LABI coming out against it ... that would tell me it’s in trouble,” he said.

With the governor pushing to eliminate corporate franchise taxes, Talbot said he proposed a cigarette tax increase to ensure the state has a way to replace that revenue stream.

Ritchie, D-Bogalusa, also is revisiting a tobacco tax hike.

His House Bill 417 would raise the cigarette tax by $1.05 per pack and increase the tax on cigars, smoking tobacco and smokeless tobacco. The money generated would go to health care, State Police, cancer research and other sources.

Two years ago, his bill to raise the tax by 70 cents and increase the cost of other tobacco products was expected to generate more than $100 million a year for state government.

The Legislative Fiscal Office estimated at the time that cigarette taxes made up 82 percent of the state’s tobacco tax collections.

Illinois raised its cigarette tax by $1 a pack last year in a move that was expected to generate an additional $350 million a year. Illinois’ population in 2012 was 12.9 million; Louisiana’s was 4.6 million.

Robert Travis Scott, PAR’s president, said he wants to see a new analysis on what the governor’s proposed tobacco tax increase would generate.

“The past fiscal notes on it have not seen that high level,” he said, referring to financial reviews of proposed legislation.

Andrew Muhl, government relations director for the American Cancer Society of Louisiana, said his organization’s estimate is that a $1.05 increase in the per-pack tax on cigarettes would generate $230 million, a $40 million difference in the administration’s apparent numbers.

The group also differs with the Jindal administration on the direction of the proceeds.

“Increasing the state’s tobacco tax will reduce smoking rates and improve the health of our citizens. The savings to long-term health care costs is also incredibly impressive. We would prefer to see the money dedicated to tobacco prevention and cessation and other health-related programs attributed to tobacco use, rather than deposited in the state general fund,” Muhl said.