Legislator proposes increasing cigarette tax to cut property tax

by T.W. Budig
ECM Capitol reporter

The twist wasn’t in the tobacco but in one of the bills before a Senate committee on Thursday (Feb. 28).

Sen. Carla Nelson, R-Rochester, in her cigarette-tax increase bill, proposes to one-up Democratic Gov. Mark Dayton’s proposed 94-cent per pack increase by 35 cents, equalling the cigarette tax levied in neighboring Wisconsin.

Commissioner of Health Edward Ehlinger and Revenue Department Assistant Commissioner Susan Von Mosch appeared before a Senate committee on Thursday (Feb. 28) during a hearing on tobacco tax bills. (Photo by T.W. Budig)
Commissioner of Health Edward Ehlinger and Revenue Department Assistant Commissioner Susan Von Mosch appeared before a Senate committee on Thursday (Feb. 28) during a hearing on tobacco tax bills. (Photo by T.W. Budig)

The Badger State’s cigarette tax is ranked eighth highest in the country, according to revenue department.

But the twist is what the Republican proposes to do with the additional $380 million a biennium the increase is estimated to snag.

“The bill is revenue neutral,” said Nelson, who proposes to use the money to buy-down the statewide business property tax.

There’s not enough money to remove the whole tax, she said.

That would require an additional $470 million a biennium, she explained.

But there would be enough money to scrap an inflation-adjustment factor in the business property tax.

Thompson gun“The inflation in the tax is stifling,” she said of its impact on business.

A Minnesota Business Partnership official indicated support for the use of the revenue, but took no position on how it was raised.

The Senate Tax Reform Committee plowed through four tobacco tax bills, one authored by a Minneapolis Democrat that propose to increase the tax on a pack of smokes by a $1.60.

Instead of increasing the tax, suggested Sen. Paul Gazelka, R-Nisswa, why not increase the legal age for buying tobacco products from 18 to 21.

This could cut off an easy means of access for teenagers who ask slightly older friends to buy them cigarettes, Sen. Dave Thompson, R-Lakeville, argued.

Health officials and anti-smoking advocates pounded the drum of youth prevention, heath care costs savings, disproportional threat to minority groups in supporting tax increases.

Department of Health Commissioner Edward Ehlinger called smoking the No. 1 health problem in the country. Every pack of cigarettes sold, Ehlinger said, translates into $8 of associated health care costs.

Molly Moilanen, director of public affairs for ClearWay Minnesota, an anti-smoking group, said price is “king” when it comes to driving down smoking.

Dr. Courtney Jordan Baechler, of the Penny George  Institute for Health and Healing at Allina Health, said 53,000 high school students in Minnesota smoke daily.

Of these 53,000 — people who smoke later in life generally start early, anti-smoking advocates say — 17,000 will die premature deaths because of the habit, the doctor said.

That increasing the tax on a pack of cigarettes will indeed decrease smoking is factored into a revenue department analysis of the governor’s 94-cent increase proposal.

Currently, for 2014, some 226 million packs of cigarettes are expected to be sold in Minnesota.

Using an elasticity model — Revenue Department Assistant Commissioner Susan Von Mosch said in analyzing past tax hikes the model was “spot on” — predicts a 31 million decrease in the number of cigarette packs sold.

While not disputing that increasing the cigarette tax could reduce numbers of smokers, Gazelka asked whether the increase would also mean additional financial burden to those Minnesotans who don’t quit.

“We know tobacco causes tremendous harm,” Ehlinger said.

The economic incentive to quit will be there, Ehlinger explained.

Minnesota Wholesale Marketers Executive Director Thomas Briant warned that increasing the cost of a carton of cigarettes by $18 would make Minnesota retailers less competitive.

It would encourage black market sales of cigarettes, he said.

Cort Holten, of Cigar Association of America, in brief testimony, asked lawmakers to do away with the “delusion” of the health care impact fee — a legacy of the Pawlenty Administration.

It’s a tax, he said.

News that the projected budget shortfall for the next two-year spending cycle improved by $463 million may not have immediately affected the cigarette-tax increase initiative.

“It’s is regressive,” Dayton said of his tax proposal, speaking after the release of the February budget forecast.

But it’s intended to prevent people from smoking, or causing them to quit, he said.

Senate Majority Leader Tom Bakk  indicated a cigarette tax increase could be included in the Senate tax bill.

“I think there’s a pretty strong likelihood some version, maybe not exactly the governor’s number, but some version, will be in the bill,” he said.

Bakk does not support a tax increase.

“Personally, no. Just because of the regressive nature of it,” Bakk said.

According to Ehlinger, about 16 percent of Minnesotans, or about 625,000 people, smoke.

Tim Budig can be reached at [email protected]