WINSTON-SALEM – The largest cigarette maker in North Carolina says its disagrees with a proposal by Sen. Elizabeth Dole, R-N.C., to charge cigarette companies an assessment to pay for a proposed buyout of federal tobacco quota.
A buyout could pump at least $4 billion into the state’s rural economy, but officials at R.J. Reynolds Tobacco Co. say the assessment breaks the spirit of Dole’s pledge not to support tax increases.
“This appears to be a classic bait and switch,” said Tommy Payne, the senior vice president for external relations at Reynolds.
“Campaign on a promise of no new taxes, yet when elected, aggressively endorse a $13 billion tax increase, which is the largest tax increase put before Congress since 1993.”
Despite savings on leaf costs and payments that tobacco companies already make to farmers, Payne said, the quota-buyout bill would cost Reynolds more than $2 billion over six years.
As she campaigned for the Senate last year, Dole did sign a pledge to oppose any increase in income-tax rates for individuals or businesses. She also backed a tobacco-quota buyout, saying the legislation could remove the cost of quota rental from U.S. tobacco and make it more competitive on world markets.
But she said that the buyout could be paid for out of an existing federal excise tax of 15 cents a pack on cigarettes.
Tobacco quotas, also known as allotments, are a license issued by the federal government to grow a certain number of pounds of tobacco, based on the buying intentions of major cigarette makers. The program has been in place since the 1930s to match the supply of tobacco with demand. But with diminished demand for their product and cheaper leaf available overseas, domestic cigarette makers have cut their purchases of U.S. tobacco by about half in recent years.
About two-thirds of tobacco quota in North Carolina is owned by nonfarmers who rent the quota to growers.
Dole and others say that by removing the cost of quota from the price of domestic tobacco, U.S. tobacco prices will fall by about 50 cents a pound and become more competitive on the world market.
Brian Nick, a spokesman for Dole, said the assessments are not a tax.
“The way we’re going about getting the money for the buyout is through a Commodity Credit Corp. loan, and then the reimbursement to the CCC is from the tobacco manufacturers. So it is not a direct levy on RJR or the manufacturers,” Nick said.
Chuck Fuller, the founding director of Citizens for a Sound Economy in North Carolina, said that under a buyout cigarette makers will save money on the tobacco they buy, provided they buy enough domestic leaf.
“This is revenue-neutral, because of the lower cost that’s available to the companies for tobacco,” Fuller said.
Payne said the cheaper tobacco wouldn’t offset the cost of the buyout assessment.
Politicians are pushing for a buyout as soon as possible. At a meeting Thursday with Farm Bureau officials from across the state, Gov. Mike Easley said he thinks a quota buyout can be approved this year in Congress.
Easley said he suspects that tobacco companies would treat the extra cost as they did the cost of a $206 billion settlement between the industry and 46 states in 1998.
“I think the additional cost would be passed on to the consumer, just like the tobacco settlement was,” Easley said.
Reynolds, which has 7,500 employees nationwide, recently announced that a restructuring would mean significant job losses in September or October. The company’s work force is concentrated among its 5,500 employees in Forsyth County.