Tobacco tax plan lights up controversy - Bill Clinton's plan to quadruple tax on cigarettes

0 Comments | Insight on the News, Nov 8, 1993 | by Brian Robertson

Some tobacco tax proponents feel that an increase of 75 cents or $1 a pack doesn't go far enough, being too low to have a serious effect on consumption. Former Surgeon General C. Everett Koop recently joined the ranks of these critics in a Washington Post op-ed piece that suggested a stiffer increase. Even tobacco farmers would benefit from a $2-a-pack tax, wrote Koop. "Most tobacco farmers know the right and smart thing to do is to get out of a business that produces disease, disability and death, and this tax can help the, make the transition to the smoke-free society and smoke-free economy that lie in our future. A small percentage of the revenue from this tax could be returned to tobacco-growing states to be used to help tobacco farmers diversify.... Tobacco-state members of Congress should be fighting for their share of the pie to help move their states into the economy of the 21st century." The White House plan includes just such a subsidy to help farmers convert to other crops.

Sharp thinks that those who suugest the mass conversion of crops simply don't know what they're talking about. "We hear people all the time outside the industry saying, 'Why not grow another crop?' Well, it's because we can't financially. ...An acre of corn might make $15 or $20 an acre in net profit, while a tobacco crop will consistently make $800 to $1,000 an acre in net profit."

Moreover, converting from one crop to another involves more than digging up and replacing plants. "Farming's a pretty big business," says Sharp, "and most farms that you see today have about $1 million to $5 million invested in equipment and property, and they operate like any other small business -- with pretty good-size payrools, lots of government regulations and red tape to deal with -- and are very vulnerable to a drastic change in the market." Tobacco farmers on the whole complain that the government's attitude of "let them grow soybeans" shows indifference to the realities of their situation.

Ironically, Washington's policies since the New Deal have encouraged farmers to grow tobacco. Begun to help lift farmers out of the Depression government subsidy programs set limits on the acreage tobacco farmers could plant, then guaranteed the price they got for their crops. After World War II, farmers created cooperatives to administer the program, buy up crops that were not sold and set the acreage allotments. The government continued to set the price floor and provide loans to the cooperatives until the early 1980s, when the cooperatives imposed annual assessments on tobacco farmers to build up reserves.

Today the government limits its role to low-interest loans, and the farmers insist -- with some justification -- that subsidies are a thing of the past. But it is true that the size and profitability of the industry can be traced to Washington's intervention.

Aside from questions of fairness, the administration's twin goals of reducing smoking while boosting revenue may be an exercise in frustration. Critics point to the experience of Canada to show the unpredictability of such efforts. Between 1984 and 1992, federal and provincial governments there raised the excise tax on tobacco by more than 200 percent. While Canada asserts that cigarette comsumption is down by 38 percent and that revenues have increased by $2.5 billion ($1.87 billion U.S.), those figures don't tell the whole story.