Studies question revenue estimate for tobacco tax

JEFFERSON CITY, Mo. -- Two independent studies have concluded that a proposed tobacco tax increase won't raise as much money as is projected on the Nov. 5 ballot.

How much less is a matter of assumptions about the likely decline in cigarette sales caused by the higher tax.

Proposition A would raise Missouri's cigarette tax to 72 cents from the current 17 cents a pack and would raise other tobacco taxes by 20 percent.

The official ballot estimate, prepared by State Auditor Claire McCaskill, says the measure would generate $342.6 million annually.

But economists said Friday that the estimate is off mark.

A study by economists the state Office of Administration, which helps prepare Missouri's budget, put the new tax revenue at $311.8 million in the first full year.

A study by University of Missouri-Columbia economist Ed Robb estimates the proposal would raise $291.1 million and could actually result in less money for some education programs.

"We know from the experiences in other states that increasing the levy resulted in a decline in consumption," said Robb, a smoker who is director of the university's Economic Policy and Analysis Research Center.

"What bothers me about the fiscal note was that it was very sophomoric," said Robb, who did his analysis at the request of the university, which could receive money under Proposition A. "It overstates the amount of revenues that the state will receive and it does not take into account the reduction in dedicated funds and local cigarette taxes."

State budget director Linda Luebbering said her office based its figures on an 8.7 percent annual decline in cigarette sales and a roughly 1 percent decline in the sales of other tobacco products.

Historical decline

The figures include a typical historical decline in cigarette sales, plus an added reduction for the higher price -- causing customers to quit or buy cigarettes from other states or over the Internet, she said.

A spokesman for McCaskill said the office stands by its projection, which was based on figures from the Department of Revenue.

"Our role is to put forth to the voters estimates that ... deal with facts and reality rather than studies drawn up by economists," said spokesman Glenn Campbell.

The auditor's office also took some flak earlier this year for its revenue estimate for the Proposition B transportation tax. Legislative researchers had projected the tax would raise $511 million annually, figuring that sales tax collections would grow over time.

The official ballot estimate by McCaskill's office was $483 million annually, assuming no growth in sales tax collections. Voters defeated the tax in August.

Missouri's current cigarette tax dedicates 13 cents on each pack to education. The remaining 4 cents goes to health programs.

Robb said that that if fewer cigarettes are sold, education and health programs could see their earmarked share of the state's existing tobacco tax fall by a combined total of $10 million.

Under the tax proposal, 43 percent of the new tax money would go to health care treatment, including prescription drugs for seniors and initiatives for the poor, women, minorities and children.

Twenty-nine percent would go to hospital trauma care; 14 percent to life sciences research; 7 percent to smoking prevention efforts; and 7 percent to early childhood programs.

"We will see a decline in smoking," said Brad Ketcher, spokesman for Citizens for a Healthy Missouri, which is backing Proposition A. "But to say it's going to harm education is patently unfair when this proposal invests in early childhood and anti-smoking education."

Ron Leone, executive director of the Missouri Petroleum Marketers and Convenience Store Association which opposes the measure, said the lower revenue estimates are a cause for concern.

"I think it clearly shows that the anti-tobacco zealots will do anything to tax 25 percent of the population in order to help their corporate entities," Leone said. "The unintended consequences of Proposition A are real."

A lawsuit filed earlier this year by opponents of the tax also challenged the state auditor's financial estimate. But a three-member panel of the Missouri Court of Appeals for the Western District ruled that the ballot language was fair.

Ballot measure supporters have their own economic analysis in the works.

Ketcher said that former state budget director Jim Moody is preparing his own report on Proposition A. Moody is a lobbyist who is working for Citizens for a Healthy Missouri.