Declining sales won't help revenues
Newton's third law of physics is as true of politics as it is of science. The action was a 158 percent hike in cigarette taxes last week in Washington; but the reaction will be felt in North Carolina.
Analysts estimate that cigarette sales will decline by 6 to 8 percent as a result of the 62-cent hike in taxes to pay for expansion of the State Children's Health Insurance Program (SCHIP). Falling cigarette sales drive down states' revenues -- they collect less state-excise tax on Cigarettes as sales fall, and they receive lower settlement payments from cigarette manufacturers.
All in all, the states are projected to lose up to $1.8 billion in revenue as a result of the federal tax increase. North Carolina alone is projected to lose $35 million a year because of the federal tax hike, but for our state that's just the tip of the iceberg.
North Carolina is unique in that More than 50,000 jobs are tied to the tobacco industry. As sales decline, so do jobs. As a result of the federal tax hike, 3,000 N.C. jobs could be in jeopardy -- from the manufacturing, agricultural, retail, wholesale and distribution sectors of the industry. Suppliers of goods and services to all those sectors lose sales and lay off employees. No other state suffers the reaction at home to cigarette-tax actions taken afar.
Those newly jobless North Carolinians will further strain a groaning unemployment benefit system and further drain social services. Jobless families cut back their spending every way possible, exacerbating the state's and the nation's struggling economies, which rely heavily on consumer spending to keep the engines running.
Cigarette taxes are also paid by the people who can afford them least, and who have already been hit hardest by the recession. More than half of U.S. smokers are classified as "working poor," and one in four lives below the poverty line.
Ironically, these lower-income individuals will be paying for health insurance for people who potentially make twice as much as they do. The median North Carolina smoker's family income is $33,437. In some states, families making $75,000 or More are eligible for SCHIP coverage.
Our state's economy can ill afford the hit it took last week at the hands of the federal government. For the North Carolina legislature to approve yet another hike in the state tax on Cigarettes -- on top of the 62-cent jump at the federal level -- would be beyond insult to injury.
In 2008, the state of North Carolina received almost $501 million in cigarette excise taxes, sales taxes and tobacco settlement payments. On top of that, the state received corporate taxes from businesses affiliated with the tobacco industry, and income, property and other taxes from the tens of thousands of residents whose employment is tied to the industry. Tobacco remains a significant contributor to the state's economy and employment, and efforts that would serve to undermine the industry's economic contributions are short-sighted in light of the state's current economic status.
According to the Center for American Progress, North Carolina is likely to get More than $10 billion from the federal stimulus program, without raising a single tax or placing jobs in the tobacco sector at risk. One of the first principles of economic development is to keep the jobs you have -- it's far easier than going out and trying to recruit new ones.
Supporters of tobacco-tax increases often justify them as being necessary to continue the decline in youth smoking. Kids shouldn't smoke -- we all agree on that. Fortunately, youth-smoking rates have fallen by 50 percent in the last decade. Meanwhile, underage alcoholic beverage drinking rates are twice that of smoking rates. North Carolina and every other state but one, Massachusetts, meets federal guidelines for preventing cigarette sales to minors.
Our state will disproportionately suffer the economic consequences of actions taken by others. The very last thing we should do is make those consequences worse. We don't want to find ourselves saying, in the words of cartoonist Walt Kelly, "We have met the enemy and he is us."