Tax proposal burns lawmakers, farmers

As the state government brainstorms options to counter a looming budget deficit, local politicians and those involved in the tobacco industry resoundingly oppose Gov. Timothy M. Kaine’s proposed sales tax increase on cigarettes.

They cite general economic malaise and particular concerns for Southside residents.

Kaine announced proposals this week to address a projected $2.9 billion budget shortfall, including spending cuts in every sector of the government, from streamlining transportation operations to holding off on state employee salary increases, along with a doubling of the 30-cent tax on cigarettes.

“I think everyone recognizes that this is going to be one of the most challenging budget scenarios we’ve faced in many, many years,” said Sen. Robert Hurt, R-Chatham, who added that he applauded the governor for tackling the spending side of the budget, and said that’s where the legislature’s focus should be.

“You have got to get spending under control,” Hurt said.

Delegate Don Merricks, R-Pittsylvania County, agreed.

“This is not the time to raise taxes,” he said. If anything, Merricks said, history has shown that lowering taxes increases revenues because people have more money to spend.

“Consumer confidence is at an all-time low and justly so,” he said. “It’s like a merry-go-round; where do you jump on? People are cutting back, they’re losing their jobs, their income is cut, they’re not buying, the state’s not getting taxes and it just keeps going.”

Delegate Danny Marshall, R-Danville, also argued that Virginia retailers close to North Carolina will be hurt as people may just go over the border to purchase cigarettes.

“When they’re over there buying cigarettes, they’re going to buy other things, too,” he said.

For his part, Kaine argued that his proposal isn’t a general tax increase that would put a strain on Virginia families already struggling. Rather, he said, it is “targeted to a specific non-essential product.”

The rationale

In his proposal, Kaine explained the rationale behind raising taxes on cigarettes as one relating directly to the state’s second-highest spending bracket: health care.

The Centers for Disease Control and Prevention estimates that cigarette smoking causes $400 million per year in Medicaid expenses for the state.

Virginia’s current cigarette tax raises only $167 million per year to cover that cost, Kaine said, meaning Virginians pay another $233 million a year in taxes to support Medicaid costs related to smoking. Not to mention all the non-Medicaid related smoking costs.

“I believe that the taxes on smoking should pay for the budget costs incurred because of smoking,” he said in a written statement.

The tax increase would generate another $148 million in revenue that would go directly toward the Health Care Fund, which supports Medicaid.

The tax, Kaine spokesman Gordon Hickey said, “could have a huge impact when people realize how much money we spend on tobacco-related health issues.”

Industry impact

Kaine’s hope and tobacco farmers’ fear are one in the same: a high enough premium on smoking might convince some people to quit.

Kaine, in his statement, argued that could reduce financial burdens on the health care system. Tobacco farmers worry about who will buy their products.

“When the prices of cigarettes go up, (smokers are) not going to keep paying those high prices,” tobacco farmer Clarence Emerson said. “The domestic demand goes down, the demand from companies is down, and that’s going to come back to us.”

Local legislators agree with that assessment, saying that any increase in cigarettes would impact everyone involved in tobacco production. While acknowledging that the industry has declined in recent years, it is still a major part of the economy.

“The tobacco business has been a mainstay of the economy of Virginia,” Marshall said, “There are a lot of tobacco jobs here.”

Danville and Pittsylvania Country growers would be particularly hard hit because of the nature of purchasing structures, according to local growers and agronomists.

Philip Morris has receiving stations across the region designated as either domestic or international. Those labeled domestic manufacture cigarettes sold in the United States.

The receiving station in Danville is strictly for domestic consumption, “so (the tax increase) would have a huge impact on the industry,” said grower and co-founder of Concerned Friends for Tobacco, C.D. Bryant of Blairs.

The governor’s office doesn’t quite see it that way.

“Philip Morris is a huge, multinational company and this small amount of tax increase will have a minimal effect, if any, on them,” Hickey said.

“You still end up with a cigarette tax that’s about the half the national average and much lower than other states, which means a small, if any, impact on the business side of things.”

Balancing act

By Virginia law, the state’s budget must be balanced, so there can be no deficit.

It’s this stipulation that Hurt said makes Virginia one of the best-managed states and more business friendly. However, it also has lead to Kaine’s spending cuts and cigarette tax hike.

Despite the major disagreement over the tobacco tax increase, lawmakers are confident Virginia will emerge soundly.

“We will balance our budget,” Hurt said, “and we will be stronger for it.”

Contact Sarah Arkin at or (434) 791-7983.