Tobacco company vows to fight tax hike

Tuesday, Nov. 5, 2002 | 11:07 a.m.

The nation's second-largest tobacco manufacturer vows to lobby against a proposal to raise Nevada's cigarette taxes from 35 cents to 70 cents a pack, arguing that the increase would hurt low-income smokers.

But R.J. Reynolds Tobacco Co. spokesman John Singleton conceded Monday that the tobacco industry faces an uphill battle, given the fact that 20 other states have already raised their cigarette taxes this year.

The proposal made by the Governor's Task Force on Tax Policy in Nevada is expected to be part of the final report the panel could release to Gov. Kenny Guinn as early as Wednesday. The task force report, which will also include recommendations to increase property and alcohol taxes and establish new business and entertainment taxes, aims to cure the state's projected general fund budget deficits through at least 2010.

Singleton said in an interview from corporate headquarters in Winston-Salem, N.C., that a cigarette tax increase would be regressive because of the large number of low-income consumers who would be affected. In 1999, 58 percent of all adult smokers in the nation made less than $35,000 a year, he said.

"Basically, it's a tax that is paid by people who can least afford to pay it," Singleton said. "Adult smokers are being singled out, probably because they are a politically correct target. It's fundamentally a lot easier to go after smokers without a political downside. A lot of our lobbyists spend time pointing to the unfairness of raising the taxes on smokers.

"Smokers make up only about 23 percent of all adults. Clearly the taxes on smokers are already at a disproportionate level. If you're going to do something like balance the budget, why would you not look at a broader-based tax?"

Task force chairman Guy Hobbs said his committee agrees that the cigarette tax is regressive. But he said the task force recommended the increase for other reasons, such as the $61 million it would raise next fiscal year, along with the ease with which it can be collected. Nevada also hasn't raised the cigarette tax since the 1980s.

"It isn't a great growth revenue source, but I don't think you want it to be because of the health care costs attributed to it," Hobbs said. "One of the things that we took into account was compatibility with taxes in other states."

Cigarette taxes are higher in some neighboring states, with California charging 87 cents a pack and Oregon levying $1.28. If Nevada doubles its cigarette taxes, that would make it equal to the 70-cents-a-pack tax in Utah. But it would be above the 58 cents charged in Arizona and 28 cents levied in Idaho.

The national average for state cigarette taxes as of August, according to R.J. Reynolds, was 62 cents a pack. Massachusetts leads the nation at $1.51 a pack and tobacco-growing Virginia is lowest at 2.5 cents a pack.

Singleton said a cigarette tax increase could force Nevada smokers to buy their cigarettes in neighboring states, such as Arizona or Idaho, that have lower taxes. If that happens, it could also lead to a loss of convenience store jobs in Nevada, because those stores generate about one-third of their profits from cigarettes, he said.

"You could also have illegal entrepreneurs who are willing to bring in a truckload of cigarettes from another state and then set up on a street corner," he said.

But Hobbs and Keith Schwer, director of UNLV's Center for Business and Economic Research, downplayed those arguments.

"We don't think the tax increase will create some of the overly dramatized claims they're making," Hobbs said. "I would have expected more originality from them."

Schwer said the job loss, if any, would be at a minimum. He also raised doubts that Southern Nevadans would go to Arizona for cigarettes because they would save only $1.20 on a carton of 10 packs. When one factors in the cost of gasoline and the time it would take to drive to Arizona, Schwer said it would not be worth it to most smokers.

"You wouldn't get a lot of people doing it," Schwer said. "It's actually a modest tax increase. That's not a big incentive for people to go out and avoid taxes or set up a smuggling operation."

Under agreements with Nevada, Native American tribal smoke shops also would be required to raise their prices by at least 35 cents a pack if the state tax is raised by that amount. But since the tribes don't pay state taxes, they would keep that additional money for their own governmental operations.