By ANDY ZIEMINSKI, Capital News Service
LANDOVER (September 26, 2007) - Gov. Martin O'Malley proposed doubling the tobacco tax Wednesday to $2 per pack, with one-third of the estimated $255 million in new revenue going toward health care initiatives.
The rest of the $1-a-pack increase would go to the general fund to help offset Maryland's projected $1.7 billion budget deficit, one more part of O'Malley's plan to fix the budget through legalized slots and a series of tax adjustments.
As he has done in previous budget appearances, O'Malley promised some tax cuts Wednesday along with his tax increases. Speaking to a group of senior citizens, he announced plans to double the tax exemption for seniors, from $1,000 to $2,000, and to offer a $50 sales tax rebate to help low-income households cope with his plan to raise the sales tax.
Since last week, the governor has called for legalizing slot machines, replacing the flat income tax with a graduated system, closing corporate tax loopholes, lowering the property tax and raising the tax on car sales.
O'Malley said his goal with the tobacco tax is to use some of the new revenue "as a down payment" to expand Medicaid limits and offer incentives for small business owners to offer their employees health insurance.
He said he expects his other tax proposals, once they are up and running, to take over the cost of expanded health programs.
"I think what we have put forward is a framework to find consensus," O'Malley said in an apparent reference to a $1-a-pack increase passed by the House of Delegates this spring but defeated in the Senate.
Opponents at the time questioned the logic of supporting health programs with a revenue source that would diminish as people bought fewer cigarettes. They repeated those objections Wednesday.
"The folly of it is them counting on the revenue of a declining revenue stream," said Senate Minority Leader David R. Brinkley, R-Frederick. "It's just a bad idea."
But Vincent DeMarco, president of the Maryland Citizens Health Initiative, praised the proposed tax increase.
"This is a great step forward for the children of Maryland, the uninsured and all of us," DeMarco said. "The governor's proposal at the very least is going to keep 50,000 kids from smoking."
Tax proponents have long argued that more expensive cigarettes encourage adults to quit smoking and deter children from ever starting. Fewer smokers lead to a lighter burden on the health care industry in the long run, which saves taxpayer dollars, they argue.
As legislators begin looking for ways to close the budget gap, "we need to do this in a way that is a lot fairer to people on fixed incomes," O'Malley said. He said the tax-relief measures announced yesterday—doubling the tax exemption for seniors and offering a sales tax rebate to households with a gross income up to $30,000—would cost the state $20 million and $10 million, respectively, in the first year.
The state last increased the cigarette tax in 2002, from 66 cents a pack to the current rate of $1. That rate is the same as the District's, lower than Pennsylvania's ($1.35) and higher than Virginia (30 cents) and West Virginia's (55 cents).
Delaware raised its tax this year from 55 cents a pack to $1.15.
Bruce C. Bereano, a lobbyist for the Maryland Association of Tobacco and Candy Distributors, said raising Maryland's tax will only encourage smokers to drive to other states for cigarettes.
"I don't know where their head is," he said. "People will buy their cigarettes elsewhere. People will go out of state, so the state will lose out on its tobacco tax revenue."