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State should brace for tobacco taxes

By Staff
Most agree that a hike in the federal tax on tobacco is coming. The golden leaf has become an easy target. The question is just how much the tax will go up and how severely it’s going to hurt states like North Carolina.
A bill that passed the Senate Finance Committee last week calls for an increase of 61 cents, which would raise the federal levy to $1 a pack; the House version contains a 45-cent increase.
Steve Troxler, commissioner of the state Department of Agriculture and Consumer Services was quoted as saying, “North Carolina could be in for a double whammy.”
The tobacco industry, including those that grow, harvest and process the leaf sees the hike as inevitable because the money would pay to expand a children’s health program, a very popular cause. They are also bracing for the backlash.
Smokers would obviously feel the pinch if the price of smokes hits $4 a pack. So would stores that sell the products. After that, there is ripple effect.
If the Senate version becomes law, North Carolina would lose at least $540 million a year from decreased cigarette production, smaller cash receipts to tobacco farmers and a lower share of tobacco settlement money, according to Blake B. Brown, an agricultural economics professor at North Carolina State University. Those losses would result from an anticipated decline in cigarette sales because of the nationwide tax increase.
Others say the loss won’t be nearly as bad, and the benefits of the tax hike outweigh the problems. They could be right.
The Campaign For Tobacco-Free Kids has published a report that says for every 10 percent increase in the price of cigarettes, the incidence of smoking by youth drops 7 percent.
Smoking is already down across the board. Tobacco hit its peak with a consumption of about 30 billion packs a year in 1982. It’s now down to about 17 billion packs. During that same time the retail price of a pack of cigarettes, in current dollars, increased from about $1.50 to closer to $3.75.
Federal lawmakers see tobacco as a cash cow. They can also see that their share of the total price of a pack of cigarettes has declined from 30 percent in 1960 to 10 percent in 2006. Hiking the tax up to $1 a pack would mean millions more dollars streaming into the federal treasury.
Despite an overall decline in tobacco farming, the golden leaf is still North Carolina’s fourth-leading agricultural commodity behind poultry, hogs and plants grown in nurseries. In Beaufort County there was about 1,900 acres in production for tobacco in 2006, according to the N.C. Department of Agriculture and Consumer Services. In Martin County, the figure was about 1,700 acres.
There is also an ongoing legislative effort to give the U.S. Food and Drug Administration the power to regulate tobacco products. A bill sponsored by Sen. Edward Kennedy, chairman of the Senate Health Committee, got a hearing last week; it would restrict tobacco advertising, prevent sales to minors and require the removal of harmful ingredients.
But the tax hike could be an even bigger hit for the industry.
If the higher tax is in fact coming, North Carolina better start bracing itself.