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‘Tobacco tax’ still has folks smokin’ hot

Gov. Haley Barbour’s State of the State speech last week brought no major surprises for what was in it, but one minor one for what was not.

Barbour, as expected, warned lawmakers that this session would be full of tough budget decisions and that no state agency would be exempt from cuts.

An issue that has been at or near the forefront of the past four sessions – Mississippi’s cigarette tax – did not make the final draft of Barbour’s sixth State of the State.

The House last Wednesday passed a bill 81-39 that would raise the state’s tax on one pack of cigarettes from 18 cents to $1.

After long-standing opposition to a cigarette tax increase of any kind, Barbour followed the lead of his Tax Study Commission and proposed a 24-cent increase on a pack of cigarettes, to 42 cents per pack, far lower than the amount the House bill mandated. That bill is now in the Senate, and it was unclear late last week when or if the bill would be brought up in committee.

The amount of a cigarette tax increase is just one layer of disagreement between the two chambers.

House leaders would prefer the revenue generated by the $1 tax – which Ways and Means Committee chairman Percy Watson, D-Hattiesburg estimated at $200 million a year – to go mostly toward funding healthcare, specifically Medicaid.

Rep. Steve Holland, D- Plantersville, who chairs the Public Health and Human Services Committee, said he would like for at least some of the funds to go to healthcare, but added he was not “terribly hung up” on where the money goes.

“It will generate an expansive amount of revenue,” he said.

Rep. Dirk Dedeaux, D-Perkinston, chairs the Medicaid Committee and says taxing cigarettes to fund Medicaid makes sense because cigarettes contribute heavily to rising costs associated with the state’s healthcare program that serves roughly 600,000 poor and elderly Mississippians. “We’re taxing the problem,” Dedeaux said.

Barbour and his allies in the Senate would like to see money generated by a cigarette tax hike go toward the state’s general fund, where it could be spent on any of the state’s agencies or departments. In a speech recently, Barbour said that method would allow for more flexibility in a tight economy.

Sen. Alan Nunnelee, R-Tupelo, is chair of the Appropriations Committee.

“The Senate is also in favor of taking some, not all, but some of the proceeds from the cigarette tax and using that for targeted tax reductions that stimulate jobs,” he said.

Wherever the money goes, it will be critical that the revenue estimate assigned to it be accurate. Lawmakers should also expect revenue from cigarette taxes to fall each year, if what has happened in other states is any indicator.

A study by the tobacco industry found that in the first five years of this decade, the number of packs of cigarettes taxed by states fell by 2.8 billion packs.

The National Conference of State Legislators estimated last August that the combined deficit states will face in 2009 would exceed $40 billion. Raising cigarette taxes is a politically expedient way to make up some of the shortfall.

“We have to do that (make revenue estimates for money brought in by cigarette taxes),” Nunnelee said. “We do it for a lot of other different areas. Predictions are an inexact science. You’re never going to hit it to the penny. But we’re pretty good at estimating what the changes would be on the state’s budget.”

So what happens if the revenue from a cigarette tax increase falls short of the estimate?

“That’s the pertinent question,” Nunnelee said. “I am interested in increasing the cigarette tax. But from a budgetary standpoint, I am more interested in making sure whatever figure we use as an estimate for total revenue is a realistic figure. The biggest danger is to use an inflated figure, so I’m going to be asking a lot of hard questions before we start spending money. We can’t spend projections. We can only spend real dollars.”

Contact MBJ staff writer Clay Chandler at clay.chandler@ msbusiness.com .

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