Tobacco tax differs by $63 million from Prop A

JEFFERSON CITY, Mo. -- Gov. Bob Holden wants to ask voters to increase the cigarette tax by 55 cents per pack, which he says would raise $279 million in the next fiscal year.

Last November, voters rejected Proposition A, a ballot measure that said the same 55-cent-a-pack increase would raise nearly $342 million in the next fiscal year.

The $63 million question is, how could two such disparate revenue estimates be attached to the same tax increase?

State budget director Linda Luebbering on Friday cited two reasons.

First, the estimate for Holden's proposal is for 11 months' worth of the higher tobacco tax. Holden wants to put the question to a statewide vote on July 1 -- the first day of Missouri's 2004 fiscal year -- and it would not take effect until August.

For Proposition A, voters were given an estimate of a full year's worth of the higher tax.

"We had to account for the loss of a month," Luebbering said.

Lost sales factor

Second, Luebbering said, the revenue estimate approved by the state auditor for Proposition A was too high because it did not include the possibility that the tax increase might reduce cigarette sales.

Tom Kruckemeyer, a state economist who specializes in tobacco issues, said research shows that if Missouri enacts Holden's proposal, there would be a corresponding drop in smoking of about 7 percent.

During the campaign for Proposition A, there also were other discrepancies about the revenue that would be generated from a tax increase.

A study by economists for the state Office of Administration, which helps prepare Missouri's budget, put Proposition A's tax revenue at nearly $312 million.

Another study by University of Missouri-Columbia economist Ed Robb estimated that the proposal would have raised $291 million and would have resulted in less money for some education programs.

Proposition A would have earmarked its taxes for specific programs, including some new ones. But Holden's proposal would place the money in the state's general revenue fund, meaning it could be used as needed but likely would help pay for existing health-care programs.

Proposition A failed by 29,125 votes out of a total of 1.78 million cast.

Ronald J. Leone, executive vice president of the Missouri Petroleum Marketers and Convenience Store Association, maintains that tax dollars would be drawn away from Missouri by cheaper cigarette states and Internet sales.

"I think these differences clearly show the precariousness of raising a tax 324 percent and exactly what kind of consequences it will have on consumer behavior," said Leone, whose group opposed the November ballot issue.

Economist Kruckemeyer said the amount of tax revenue lost to other states would be minimal, and that it would still be cheaper to buy cigarettes in Missouri than on the Internet.

The revenue associated with Proposition A also were subject of a lawsuit early last year. The lawsuit filed by opponents of the tax challenged the state auditor's financial estimate. A three-member panel of the Missouri Court of Appeals for the Western District ruled that the ballot language was fair.