Members of Congress will soon consider an early learning initiative proposal that would be paid for in part with revenues generated through higher federal taxes on tobacco products and additional state dollars.

The program and tax increase, which must be approved by Congress, are included in the Obama administration’s fiscal year 2014 budget proposal. The budget plan calls for adding 94 cents to the federal excise tax collected on cigarettes, boosting the tax from $1.01 to $1.95 per pack.

Critics of the tax increase question the rationale for tying a popular program to what they describe as an unstable and declining revenue source. Tobacco tax increases often fail to generate anticipated revenues, they say.

Opponents point to the drop in cigarette sales after the last federal tax increase in 2009. According to industry data, total state tax-paid sales declined 8.3 percent the following year.  If the trend continues, they charge, governments would collect less revenue from cigarette taxes which could result in large funding gaps.

Linda Doherty, President of the New Jersey Food Council says tobacco taxes are becoming an unstable source of government revenue.

“Tobacco is an easy target for a tax increase because it does not impact the majority of people. We know from experience that taxing tobacco has reached a point of diminishing returns and a more stable revenue source is needed to sustain funding for worthwhile programs,” Ms. Doherty said.

Under the Administration’s plan, funding responsibility for the $75-billion, 10-year program would be a shared by the federal and state governments, with the U.S. government paying as much as 91 percent of the costs in the first years.

By the fifth year, costs would be shared equally and by the tenth year participating states would bear as much as 75 percent of program costs.

It was not immediately clear how states would fund their respective shares of program expenses.

The proposed 94-cent-per pack hike would be the largest in history and the second boost in the cigarette tax during the current administration. In 2009, the president signed into law an increase of 61-cents per pack to fund a children’s health insurance program.

 

Robb Austin

Austin Communications

Austin Communications represents Altria Client Services Inc.