State taxation proposals fuel heated debate

TOPEKA-Cigarettes and gasoline are an explosive mix.

Maybe that’s why the Senate Assessment and Taxation committee held hearings on the bills to raise the cigarette tax and the gasoline tax on separate days. Not everyone who had something to say could have fit in the room at one time.

On Tuesday, the committee heard testimony on the bills to raise the cigarette tax by 65 cents a pack and the sales tax by one-quarter cent. On Thursday, the senators heard testimony about the bill to raise the tax on gasoline and diesel fuel by 1 cent a gallon and vehicle registration fees by 3 percent.

The three bills embody the tax increases recommended by Gov. Bill Graves last month as part of his solution to the state’s growing budget crisis.

State Budget Director Duane Goossen briefed the committee on the state’s budget shortfall, which now looks to be worse than the $426 million projected in November. Goossen said state revenues were running $100 million below the estimate.

The cigarette-tax hike would raise $95 million in fiscal year 2003; the sales-tax hike would raise $101 million; and the fuel tax and vehicle- registration fee increase would raise $22 million.

Goossen said the increases were needed to maintain vital services in education and social services, and to avoid cutting highway-improvement projects.

Public-health groups have lined up behind the governor to support the cigarette-tax increase as sound health policy. Several groups joined last month to form the Kansas Health Care Access Coalition, which announced its formation from the governor’s office.

Earlier this week, the coalition released a poll showing support for a cigarette tax increase among registered Kansas voters. According to the coalition’s press release, 72 percent of the 500 Kansans surveyed said they supported a 75-cents-a-pack increase, if part of the revenue was used for a program to reduce tobacco use.

The results were consistent across the political spectrum, with 71 percent of Democrats, 74 percent of conservative Republicans and 77 percent of moderate Republicans favoring an increase.

Market Strategies Inc., whose clients include President George W. Bush, conducted the survey.

Coalition representatives spoke at the Tuesday hearing. Sally Finney, executive director of the Kansas Public Health Association, said studies have shown that when the price of a pack of cigarettes increases, consumption drops, especially among teenagers.

“This is good health policy,” she said. “Tobacco kills more Kansans than any other cause. And every one of those deaths is preventable. Cigarettes, when used as directed, kill.”

Finney said cigarettes kill 5,000 Kansans a year, including 400 from secondhand smoke. Reducing cigarette consumption would also have long-term fiscal benefits for the state because about $70 million of Medicaid spending is directly related to tobacco use, she said.

Terri Roberts, executive director of the Kansas State Nurses Association, said the average smoker starts at 12 years old and the 65-cents-a-pack increase would deter children from smoking.

Representatives of the Kansas Hospital Association and the Kansas Medical Society said their boards voted unanimously to support the cigarette-tax increase.

Carter Headrick of the Texas-based National Center for Tobacco-Free Kids quoted from tobacco company documents that said raising the price of cigarettes is one of the effective ways to reduce consumption, especially among kids.

“We actually found something we agree with the tobacco industry on,” he said.

Headrick said studies show that for every 10 percent increase in price, there is a 4 percent drop in overall consumption, and a 7 percent drop among children.

He said concerns that Kansans would just go to Missouri to buy their cigarettes were overstated, because every state that has significantly raised its cigarette tax has seen a drop in consumption. And every border state but Colorado is considering a cigarette-tax increase of between 40 cents and a dollar.

Concerns that the tax increase would hit lower-income people were also overstated, Headrick said. Low-income smokers are more sensitive to price increases and will avoid the tax increase by cutting down or quitting cigarettes, which would also reduce their medical expenses and health insurance premiums, he said.

Mark Tallman, assistant executive director of the Kansas Association of School Boards, spoke in favor of the cigarette- and sales-tax increases on fiscal grounds. He said that school districts will have to cut programs if the state per-pupil aid is cut and that small, rural programs would have special problems.

“Many of these districts are losing enrollment because they are losing population and the economic base in their communities,” he said. “The only option will be closing schools, increasing the downward spiral of many communities.”

Ron Hein, an attorney representing R.J. Reynolds Tobacco Co., opposed the cigarette-tax increase. He said public support for a cigarette-tax increase could be explained by the common attitude that the only good tax is a tax on somebody else.

Hein said the increase would put Kansas retailers at a competitive disadvantage because the state’s cigarette tax would be higher than all of its neighbors’.

“Kansans could save money simply by crossing borders,” he said.

The increase would cost Kansas businesses about $200 million in revenue and the state about 400 jobs, Hein said. It would also hit low-income people the hardest, because tobacco taxes are the most regressive taxes of all.

Supermarket, convenience store and gas station representatives testified against the tax increases, arguing that the higher taxes would put them at a competitive disadvantage against retailers in neighboring states with lower taxes.

Anti-tax activist Karl Peterjohn of the Kansas Taxpayers Network called the bills “the western Missouri retail-development act of 2002.”

Thursday’s hearing on the bill to increase the motor fuel tax drew a standing-room-only crowd, most of it opposed to the increase.

Budget Director Goossen said that without additional revenue, highway projects would have to be cut. Projects that would be cut in fiscal year 2003 include:

U.S.169 northeast of Coffeyville in Montgomery County;

U.S. 36 in Jewell County from K-128 east to 4.7 miles east of K-14;

U.S. 77 in Marion County from U.S. 50 north to U.S. 56/K-150;

U.S. 160 in Seward and Meade counties from U.S. 83 east to U.S. 54;

U.S. 183 in Ellis County from 55th Street in Hays north to the county line;

I-35 in Coffey County from the county line east to U.S. 75

U.S. 36 in Doniphan County from Wathena to the Missouri River Bridge.

Tom Whitaker, executive director of the Kansas Motor Carriers Association, said that although the trucking industry supported the state’s highway-improvement plan, it couldn’t afford a tax increase.

He said state and federal taxes on a single tractor-trailer totaled thousands of dollars, including a $1,760 registration fee. The industry’s insurance costs were rising and profit margins were falling, and a truck would have to generate an additional $57,000 of revenue to pay the increased tax.

Gasoline retailers testified that an increase would hurt their ability to compete with Missouri and Nebraska gas stations.

And Tony Tanking of Ag Partners Coop, Inc., in Hiawatha, said gas stations on Indian reservations drew customers from 20 to 30 miles away with lower prices before the reservation’s tax exemption was repealed.

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