Barbour Caves on Tobacco Tax

Jaro Vacek

Gov. Haley Barbour did the unexpected today and agreed to raise taxes on tobacco.

by Adam Lynch
November 18, 2008

Mississippi Gov. Haley Barbour, a former tobacco lobbyist, announced that he would support a recommendation to raise the state’s 18-cent tax on a pack of cigarettes to 42 cents per pack. “I had said last year, and again this year when I created the Tax Study Commission, that if the commission should propose a tax increase on tobacco that I’d pass it along to legislators, and that’s contained in this budget,” Barbour said Tuesday.

Barbour estimates the increase to generate about $84 million, which includes a 43-cent increase on cigarettes from companies that do not participate in a $4.1 billion tobacco settlement with the state.

His decision was not a money issue, he said. “It’s a health issue,” he said. “The only reason you raise it is for health purposes, and if you raise it for health purposes, why would you leave some cigarette to sell for 40 or 50 cents a pack less?”

Roy Mitchell, director of the Mississippi Health Advocacy Program, said the tax should be about $1 a pack, if Barbour was serious about the tax being a health issue.

“If you’re really looking to discourage smoking, the tax needs to be $1 or more. Anything less is nothing more than a friendly wink to tobacco companies,” Mitchell said.

Barbour’s agreement to a tobacco-tax hike is a concession to Democratic lawmakers who pushed hard for the tax in lieu of a $90 million tax on hospitals to fill holes in the state’s Medicaid program. Barbour attempted to reinstate the tax during a special session this year, arguing that hospitals had already been paying the tax from 1993 to 2005.

Hospitals argued that the tax differed from the 2005 tax in that the money would be spread unequally and force some hospitals to close their doors, while Democrats argued that hospitals would pass the $90 million bill down to patients.

House Public Health and Human Services Committee Chairman Steve Holland, D-Plantersville, said he believed the House would work with Barbour.

“I think the Legislature is going to be very amenable to looking at all plans as far as tobacco taxation,” Holland said. “I think there needs to be some shared responsibility on the part of hospitals, but I don’t know about them paying the full $90 million. I think maybe there could be some compromise in the middle, possibly $45 million.”

Holland took issue with Barbour’s proposal to put the $84 million in new revenue into the general fund. “We’re going to have a little bit of a problem with that,” he said. “Tobacco taxes should be directed to health care.”

Barbour warned lawmakers that if they did not reinstate the $90 million tax, Medicaid will have to be cut, or the state will have to take the $90 million from elsewhere in the budget “be it MAEP, child care or mental health.”

The governor also proposed tapping the state’s rainy day fund by $84 million to bolster slumping sales revenues, though he urged legislators to be protective of the fund and avoid tapping it any further.

“I ask others to recognize that any further reductions to predicted revenue will primarily be made up by reductions in spending. I’m strongly committed to the rainy day fund lasting us at least four years,” Barbour said.

The governor also agreed to the Tax Study Commission’s recommendation to invest $15 million to upgrade technology at the state tax commission. He said he believed the state lost about $100 million every year due to dated technology at the commission. Barbour also proposed offering $1.5 million to establish a Mississippi Health Insurance Exchange to help small businesses afford employee-sponsored health insurance.

The governor’s press conference followed an announcement last week that the state would need $41.9 million in budget cuts for fiscal year 2009. State tax revenues fell 2.3 percent below estimates this year, and Barbour asked every state agency to factor in a statewide cut of 2 percent “in a manner that achieves the most effective delivery of (state) services.”

The cuts will not affect funding for most health and education programs.

Mitchell said he was relieved that the governor spared state health programs from cuts, but said continued diligence would be necessary to avoid future cuts.

“It’s a shame that we spend so much of our time as health advocates just working to preserve what we have and fighting cuts that we don’t have time to work on coverage expansion proposals that are sorely needed in this state,” Mitchell said. “We’re always on defense, even while we lag behind other states in health care coverage.”

Also excluded from the cuts are student financial aid and the Mississippi Adequate Education Program, which allots money according to school districts’ financial shortfalls.

Nancy Loome, executive director of public school advocacy group The Parents Campaign, said she had confidence that legislators would keep their hands off MAEP funding this year and possibly even next year.

“MAEP still has high popularity in both sides of the aisle and in both chambers. They say they’re still committed to fully funding MAEP,” Loome said. “I think they’ve realized that the future vitality of our state depends on a quality public education system. It’s just not one of those things that you can’t compromise when times aren’t so good, or you really suffer for it down the road.

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