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    Smoke and Mirrors

    BY John Rondy
    04/28/2005
    by John Rondy on 4/28/05.

    With strong public support for a $1 hike in the Wisconsin cigarette tax, the only question remaining now is whether state lawmakers and Gov. Jim Doyle will approve the measure as part of the 2005-2007 state budget.

    Given a looming state deficit for Medicaid costs, the proposed “sin tax” could go directly to help offset the $590 million deficit over the next two years.

    Rep. J.A. “Doc” Hines (R-Oxford), who heads the state Assembly’s Health Committee, was part of a bipartisan
    group of legislators who introduced a bill earlier this month that would raise the cigarette tax from the current 77 cents a pack to $1.77. The increase would push the cost of a pack of cigarettes in Wisconsin to about $5, according to the National Center for Tobacco-Free Kids.

    “I have caught some flak from taxpayer’s rights groups and others, but I don’t consider this a tax,” said Hines, who authored the proposal. “As far as I’m concerned, it’s a user fee.”

    Legislators will have to decide if levying such a large tax increase makes political sense. Cigarette tax hikes are being proposed in Washington state and North Carolina, and Iowa is also considering it, says Cameron Sholty, state director for Freedom Works, a national non-profit group that supports civil liberties.

    “It is politically expedient and smokers are easily targeted,” said Sholty, whose organization opposes the measure. “We see this happening all over the country, where legislators are trying to grab tobacco dollars to fund whatever serves their purpose.”

    More than three-fourths of Wisconsin residents favor the cigarette tax hike, according to a statewide survey conducted in January by the Wisconsin Hospital Association and the American Cancer Society.

    Raising the cigarette tax would generate an estimated $640 million in additional revenue over a two-year period, according to an estimate by the Legislative Audit Bureau. Under the proposal, the first $15 million of each year would go to smoking prevention and smoking education efforts. The rest would go directly into the state Medical Assistance Trust Fund, which would pay for the cost of Medicaid, a program for the poor, including many elderly, that provides health care for one in seven Wisconsin residents.

    When federal matching funds for Medicaid-related programs is factored in, there is potential for raising a total of $1.5 billion from 2005 to 2007, said Mark Grapentine, chief lobbyist for the Wisconsin Medical Society, which consists of more than 10,000 physicians statewide.

    Grapentine also said that unlike other proposals, an increased cigarette tax would provide revenue continually.

    “One of the problems we have are that some of the solutions being proposed are one-time grabs for dollars that will help pay for Medicaid and do not address the future,” Grapentine said. “So, if you apply these funds, the next time around, you might not have this problem if you look at the budget and the Medicaid program.”

    The door is open
    Last week, the legislature’s Joint Finance Committee rejected the governor’s plan to borrow for Medicaid expenses. Doyle had proposed borrowing $130 million over two years to cover Medicaid expenses. Under the Doyle plan, the bonds would have been paid back over 20 years, along with some $100 million in interest, using proceeds from an existing tax on tobacco and alcohol. Republicans who control the budget-writing committee pledged to find savings elsewhere in the budget to restore the funds, saying it was not good fiscal policy to issue bonds for ongoing expenses.

    Doyle has gone on record as opposing any new tax increases, including the cigarette tax hike, but appears to be leaving the door open to adoption of the measure if advocates can prove that it will prevent teens from taking up smoking.

    “Because he was willing to cut spending and make government more efficient, it wasn’t necessary to raise the cigarette tax,” said Doyle spokeswoman Ethnie Groves. “The governor just doesn’t believe that we should be depending on smoking to balance the budget.”

    Groves added that Doyle was interested in more than the bottom line.

    “The governor has also said that the only way he could consider a tobacco tax is if it was large enough to have a significant impact on youth smoking rates, and if part of the money would go toward making a significant investment in helping quit smoking,” Groves said. “Then he would consider it, if they can guarantee that.”

    Since its inception in 2000, the tobacco prevention and control program run by the Wisconsin Department of Health and Family Services and the Department of Public Health has had a definite impact on youth smoking rates, according to Maureen Busalacchi, executive director of SmokeFree Wisconsin. Since the program started, youth rates have gone from one in three teens smoking, to the current one in five.

    “It’s been tremendously successful,” Busalacchi said. “It really works.”

    Data from the U.S. Centers for Disease Control shows the poor in Wisconsin are four times more likely to quit smoking than other income groups if the dollar per pack tax hike is approved.

    Raising the price of cigarettes by a dollar will result in 44,000 people quitting smoking, including 9,300 pregnant women, claimed Rep. Sheldon Wasserman (D-Milwaukee), a Milwaukee physician and one of the co-sponsors of the bill.

    “This is excellent health care policy,” said Wasserman. “We could spend $1 billion in state treatment and counseling and not produce those kinds of results.”

    Grapentine said the proposed tax hike is a rare win-win in that it mitigates smoking in general and teen smoking in particular, and helps reduce health care costs related to smoking-related illnesses, which account for just less than 15% of the state’s annual $4.2 billion Medicaid budget.

    “If we can do something that can help [prevent] them from smoking in the first place, I think it will have good long-term benefits as we go,” Grapentine said.

    Not all in favor
    Not everyone is in favor of the cigarette tax hike. The current 77-cent tax, which was last raised in 2001, generated $291.3 million in state taxes in fiscal 2004.

    The proposed increase affects not only smokers, but convenience store and tavern owners as well, and disproportionately affects poor and middle-income people, according to Sholty, of Freedom Works.

    “A tax increase is a tax increase,” Sholty said. “Just because these legislators are targeting one group of Wisconsinites doesn’t mean that more taxes and spending are a good idea. Higher cigarette taxes will drive shoppers out of the state, kill jobs and hit the working poor the hardest.”

    High cigarette taxes often drive smokers to buy cigarettes over the Internet, at Indian reservations, or across state lines with lower tax rates, added Robert Bartlett, executive vice president of the Wisconsin Association of Convenience Stores. Minnesota, Iowa and Illinois all have lower cigarette taxes.

    “We point out to legislators that they are going to bank on this money, when it really is a regressive tax,” Bartlett
    said. “We don’t think that’s a good way to budget.”