WASHINGTON
President Obama signed legislation yesterday to more than double the federal cigarette tax to pay for an expansion of health insurance for low-income children.
Tobacco companies, already hurt by declining smoking rates, say they expect the 62-cent increase -- to $1.01 a pack -- to further reduce cigarette sales after it takes effect April 1.
The major tax increase on cigarettes, smokeless tobacco and cigars will finance a $32.8 billion expansion of the State Children's Health Insurance Program, providing coverage to an additional 4 million children.
"In a decent society, there are certain obligations that are not subject to trade-offs or negotiation -- health care for our children is one of those obligations," Obama said during the signing ceremony in the East Room of the White House.
It is not yet clear how hard the tax increase will hit tobacco companies.
Fitch Ratings, a bond-rating company, said it expects a 4 percent to 7 percent drop in cigarette sales this year.
Tommy Payne, a spokesman for Reynolds American Inc. in Winston-Salem, said that the company expects industrywide volume declines of 6 percent to 8 percent.
David Sutton, a spokesman for Philip Morris USA in Richmond, said it was difficult to say how the tax increase would affect the company's bottom line.
The federal increase comes after a series of cigarette-tax increases by several states in the last five years. The trend has driven up cigarette prices and is expected to continue.
So far this year, 16 states have considered legislation to increase cigarette taxes, according to the National Conference of State Legislatures. Increases are expected this year in states that have historically opposed raising cigarette taxes, including South Carolina, which has the nation's lowest state cigarette tax rate of 7 cents a pack, and Mississippi, third lowest with 18 cents a pack.
Richard Cauchi, a health-program director for the conference of state legislatures, said that it is difficult to say how many of those proposed increases will pass.
In 2007, tobacco-tax increases passed in 11 states. Last year, 20 states debated increases, but only two passed. They were unusually large -- a $1 increase in Massachusetts and $1.25 in New York. At $2.75 a pack, New York has the country's highest cigarettes taxes.
Two factors have the potential to cause another wave of tax increases this year, tobacco analysts said. The prolonged economic downturn has created budget deficits in nearly every state. Legislators generally face less resistance to increasing "sin taxes" than income taxes or sales taxes paid by everyone.
Job losses have swelled the ranks of the uninsured, and cigarette taxes are often pegged to pay for expansions of government health-insurance programs.
The fact that Gov. Haley Barbour of Mississippi, a former tobacco lobbyist, is backing a state tobacco-tax increase "is the clearest indication yet that policymakers see the writing on the wall," said Peter Fisher, the vice president for state issues for Campaign for Tobacco-Free Kids, an anti-smoking advocacy group.
"They have budget gaps to fill," Fisher said. "Lots of governors see they can raise cigarette taxes without facing a backlash from voters who might oppose other kinds of tax increases."
Tobacco companies have fought the increases in every state. They argue that tax increases rarely bring in as much revenue as projected, because higher prices prompt some people to quit and others to buy untaxed cigarettes online or on American Indian reservations.
Payne, the Reynolds spokesman, said that the increase that Obama signed could hurt states that rely heavily on cigarette taxes. The volume declines prompted by the new federal rate will also cut state cigarette-tax revenues, he said.
"They're not going to get the money they're expecting," he said.
■ Sean Mussenden can be reached at 202-662-7668 or at smussenden@mediageneral.com.
Video of the signing:
Email
Facebook
Google
Twitter
Favorites
More
Advertisement