Friday, December 12, 2008

Paper gets to tax point, eventually

The Frankfort State-Journal is like a box of chocolates, especially when they start talking about tax increases.

The headline of a Friday news story reads "Schools pleased cuts don't touch their $3 billion fund." The story doesn't mention until the 8th paragraph that Gov. Steve Beshear's "spending cut" proposal depends very heavily on General Assembly passage of his tax increases.

And the discussion of the tax increases remains a mixed bagged for several paragraphs as the effort to sell the Beshear cigarette tax increases fails to get any more rational than it has been:

"Rich Crowe, superintendent of Frankfort Independent Schools said he supports Beshear's proposed tax increases on all forms of tobacco "to help save education funding and to bring the deficit under control.""

And this:
"Franklin County Judge-Executive Ted Collins said Thursday he supports Beshear's tax increases on tobacco."

""I know cigarettes are high for people who smoke," Collins said. "But I think that's an area we can increase the tax on. It will help the state budget and will help the health of the commonwealth as well.""

The State Journal then managed to hit the bulls-eye with a quote that nailed the cigarette tax increase as a gateway drug for big spenders:
"Magistrate Lambert Moore said with the proposed tobacco tax increase, "you're balancing the budget on the poorest people in the state, the smoking public."

""Then you are relying on that money and the money is going down because people will quit smoking. So you're going to have to raise taxes somewhere else to get that money.""


Southern Lady said...

Magistrate Lambert Moore is the first official I have noticed that actually has sense. His comment was exactly what needed to be said. Finally the point we have been trying make is getting across to the officials, its about time.

Anonymous said...

The border counties around the State get a lot of people buying cigarettes in Kentucky due to tax differences. This provides jobs for people in counties with little or no other employment opportunities at least in the near future.

The people crossing the border to purchase tobacco in Kentucky will make other purchases such as gas, some shopping, and maybe food.

Raising the taxes on tobacco will cause this current source of revenue to be eliminated, put people on the unemployment rolls, and increase the black market trade of tobacco. It appears no none learned anything from prohibition!

Not only will Kentucky not realized any of the expected revenues from a cigarette tax increase but the State could find itself in a worse financial position.

Hempy said...

A "sin" tax is a poor way to raise revenue.

The Governor and Kentucky General Assembly (KGA) need to get their act together and come up with a revenue-producing business plan.

Alexander Hamilton's 1791 "Report to Congress on the Subject of Manufactures," said:

"it is nevertheless a maxim well established by experience; and generally acknowledged where there has been sufficient experience, that the —“aggregate” prosperity of manufactures, and the —“aggregate” prosperity of agriculture are intimately connected."

There are over 50,000 products that can be manufactured from hemp. The Governor and KGA needs to be badgering the hell out of Kentucky's federal delegation to introduce legislation to remove all things hemp from the Controlled Substances Act.

The state can pass laws to regulate and tax the medical and recreational use of marijuana. Thirteen other states have done it--so can Kentucky.

The staunchest opponents of such changes tend to be the Republican members of Kentucky's federal delegation. They generally oppose anything that would benefit the people of Kentucky economically.

An agricultural-based manufacturing economy is a far better way to create jobs and raise revenue than is a sin tax.

ken moellman said...

On Thursday night, I had the opportunity to go to the Governor's town hall forum in Grant County on the proposed cigarette tax increase.

The open speaker talked about how we all have to "do our share" to get Kentucky through this crisis.

Governor Beshear's PowerPoint-based presentation showed basic percentage cuts in the budgets of most areas of state government. The Kentucky SEEK funding (the bulk of K-12 funding), Medicare and Medicaid were the primary areas where cuts were not made.

He plans to borrow over $140M from the rainy day fund. He expects the cigarette tax increase to raise $81M in Kentucky's 4th fiscal quarter of 2008, which ends in June 2009. (Kentucky's fiscal years end at the end of June, the following year).

He then intends to pay the rainy day fund back with the extra cigarette tax revenue the following 2 years. So all branches of government, minus primary and secondary education, take a cut, and only 27% of residents (those who smoke) are expected to pick up the majority of the tab. So much for everyone "doing their share."

The only place taxes are being raised is on tobacco products (not just cigarettes, as clarified by a question given to the Governor by a Campaign for Liberty member).

Some of those who spoke at the event were simply anti-tobacco. A number of the comments centered around reducing tobacco use and "wishing the tax was even higher". Others spoke of taxing sodas and certain types of food. The puritans are everywhere, and they know how to live better than you. And they'll tax you into compliance.

I had the opportunity to ask the very first question of the Governor. My question was worded in a way to find the true motives of the Governor. I asked (paraphrased) why the cigarette tax, and not any other tax that might be applied universally to all citizens).

Now, I'm not for increasing taxes on anything. But the purpose of my question was to establish intent.

After hemming and hawing around, Governor Beshear responded that indeed, the cigarette tax revenues would decline, over time, though he said it would be "many years" before that happened. He admitted that the goal was indeed to reduce smoking in Kentucky to cut long-term health care costs.

At least he was honest about it. One thing I do like about Beshear is that he doesn't lie. Sometimes, he does spin and tries to sugar-coat an issue, but he doesn't lie.

The problem is, this plan won't work.

Let's look at some numbers;

Less than 5 years ago, the cigarette tax was $0.03/pack. The tax was raised from $0.03/pack to $0.30/pack two or three years ago. That itself was a 900% increase in the cigarette tax.

If Beshear's proposed tax increase comes to pass, cigarette taxes will have increased by 3233.33% in less than 5 years.

If there were a 3233.33% increase in the sales tax, for instance, our current 6% sales tax would jump to 19406% sales tax. You'd pay $194.06 for every dollar you spend.

If there were a 3233.33% increase in the property tax, residents of most counties would be paying $10 for every $1 of assessed value for their property every year.`

Now admittedly, perhaps the tax was very low in the past, when the tax was a mere $0.03/pack. But raising it to a full $1.00/pack makes our taxes (and therefore, prices) higher than almost every surrounding state (Missouri, Illinois, Indiana, West Virginia, Virginia, and Tennessee), with Ohio as the only exception.

Tax rates per pack of cigarettes for surrounding states:

* Missouri: $0.17
* Illinois: $0.98
* Indiana: $0.995
* Ohio: $1.25
* West Virginia: $0.55
* Virginia: $0.30
* Tennessee: $0.62

However, another key factor is Fire Safe Cigarettes (FSCs). Those who smoke know about FSCs. While there's debate on exactly how it's accomplished, the FSCs themselves taste differently, and leave a metallic after-taste. As a smoker myself, the only reason I still buy Kentucky cigarettes is the significant price differential between Ohio and Kentucky.

Status of Fire Safe Cigarette legislation in surrounding states:

* Missouri: No
* Illinois: Yes
* Indiana: July 2009
* Ohio: No
* West Virginia: No
* Virginia: January 2010
* Tennessee: January 2010

So those near the Missouri, Virginia, and Tennessee border would, without a doubt, buy cigarettes outside of Kentucky.

Around the Illinois and Indiana borders, we may lose some who currently come to Kentucky today for the lower prices.

Those near the West Virginia border would, for sure, go to West Virginia. This is particularly bad news for the city of Ashland, which is already in a world of hurt, due to Racinos in West Virginia and a smoking ban in Ashland.

Even Ohio stands to gain cigarette tax revenue as a result of Besher's plan. They are without an FSC law, and even a quarter more expensive ($3.25/pack versus $3.50/pack) is worth the non-FSC cigarette.

This plan to increase revenue is going to backfire. Only the center of the state will be forced to buy Fire Safe Cigarettes at a higher price. Everyone else will go outside the state. With exception to Lexington and Elizabethtown, the main population centers in the state are on the border of other states.

Government using taxes to influence how people choose to live their lives -- also known as social engineering -- is plainly wrong. People should choose their own way, as long as they don't force others to live that way, without being punished through sin taxes.

Besides, I buy my cigarettes in Kentucky by the carton, before I go on a road trip. What makes Governor Beshear think that I won't buy my cigarettes by the carton in Ohio if this tax increase goes through? Road trip to Tennessee, anyone?

Ken Moellman
Chair, LPKY

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