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Capital Notebook

BY Lesley Stedman
by Lesley Stedman on 5/26/02.

At 15.5 cents per pack, Indiana has the 44th-lowest cigarette tax in the nation. Only six states - including Kentucky at 3 cents - have lower rates.

That could change if a bill approved last week by the House Ways and Means Committee becomes law.

House Bill 1001 would boost Indiana's tax by 39.5 cents to 55 cents per pack.

The bill - the only one currently moving in a special session called by Gov. Frank O'Bannon - also would increase casino taxes to help balance the state budget. A sales tax increase - to 6 percent from 5 percent - would help pay for a property tax cut that averages 20 percent for homeowners.

The bill also includes a three-cent increase in the gasoline tax.

But although the bill is packed with tax increases, it's the cigarette tax (which hasn't increased since 1987) that has generated some of the most controversy. The proposal is a 255 percent increase in the current tax rate.

If it passed today, the new tax would give the state the 20th-highest rate, just behind Arizona at 58 cents per pack, according to Tobacco Free Kids, a national anti-smoking group. The average state cigarette tax is 48 cents per pack.

That has some lawmakers worried that Hoosier stores - especially those along the borders with Ohio, Illinois and Michigan - might lose their competitive advantage on cigarette sales.

Senate Budget Subcommittee Chairman Bob Meeks, R-LaGrange, has repeatedly said that convenience stores in his northeastern Indiana district reap tremendous benefits from the state's relatively low tax. Michigan charges 75 cents per pack while nearby Ohio charges 24 cents per pack. Illinois now charges 58 cents per pack.

But legislators may not have that much to worry about after all.

Just as Indiana lawmakers are turning to tobacco to help ease their budget woes, so are officials in other states.

Six states have approved higher cigarette taxes that have already gone into effect this year or are scheduled to in the coming months. Lawmakers in about 25 other states also are considering increases.

New York's cigarette tax increase - raising the level to $1.50 per pack, the highest in the nation - took effect April 1.

Washington's increased rate of $1.42 per pack, the second-highest in the nation, went into effect Jan. 1. Connecticut raised its rate this year to $1.11 per pack, the third-highest rate, according to Tobacco Free Kids.

Midwest lawmakers are considering similar moves.

In Michigan, the General Assembly is debating a cigarette tax increase from 75 cents to $1 per pack to help ease an $815 million shortage in the state's budget.

In Ohio, lawmakers are considering a 50-cent-per-pack increase, although some Republicans are fighting to reduce the increase to just 25 cents and make it temporary.

Illinois lawmakers also are considering an increase, even though their rate is already 19th-highest in the nation.

Health advocates are applauding the efforts to increase taxes. They say that higher taxes will lead to fewer smokers and eventually lower health care costs for individuals and governments.

Tobacco Free Kids reports that if Indiana raised its rate by 84.5 cents - the group's suggestion - almost 92,000 fewer children would start smoking. The long-term savings to the state would be $1.6 billion, the group says.

But there are plenty of detractors of higher cigarette taxes as well. Many of them criticize states for growing increasingly dependent on a tax that is largely paid by lower-income residents and a tax that could reduce the number of smokers and thus the revenue.

In an analysis by the Citizens for a Sound Economy, Jason Thomas writes that cigarette taxes are already so high that that the revenue from tobacco exceeds the cost of all smoking-related health care.

"From a political perspective, it is easy to see why cigarette taxes are so popular,'' he writes. "Shifting the cost of special interest giveaways onto low-income workers and minorities is far easier than determining what state representative's favorite program should be cut.

"But this is the meaning of responsible budgeting. Just as American families are forced to make sacrifices and difficult choices when economic times are tough, so too should state governments.''

But state action across the country shows that lawmakers are siding with the anti-smoking groups, even if it's not for the same reasons.