NATO and other associations fight federal tax hike on tobacco

Congressional leaders as of Sept. 11 had still not appointed a conference committee to negotiate the differences between the Senate and House versions of the State Children’s Health Insurance Program legislation, according to the National Association of Tobacco Outlets (NATO). mp2

The bills call for different cigarette and tobacco tax rates. Because the SCHIP program expires on Sept. 30 and no conference committee has yet been appointed, Congress may pass legislation in the next several weeks temporarily extending the SCHIP program at current funding levels to provide more time to try to reconcile the Senate and House versions of the bill, according to the association.

Meanwhile, NATO said it has coordinated a letter-writing campaign to Congress opposing the cigarette and tobacco tax increases to fund the SCHIP program. NATO said it is partnering with eight national and regional trade associations in the effort.

The associations are: the American Wholesale Marketers Association (AWMA), the Cigar Association of America (CAA), the National Association of Convenience Stores (NACS), the National Association of Truck Stop Operators (NATSO), the National Grocers Association (NGA), the Petroleum Marketers Association of America (PMAA), the Retail Tobacco Dealers of America (RTDA) and the Southern Association of Wholesale Distributors (SAWD).

The letter from the organizations was to be faxed to every U.S. Senator and U.S. Representative urging them to oppose the excessive cigarette and tobacco tax increases contained in the State Children’s Health Insurance Program (SCHIP) legislation.

Here is the text of the letter sent to members of the Senate:

The trade organizations listed below collectively represent more than 135,000 convenience stores, gasoline service stations, grocery stores, tobacconists, truck stops, wholesalers, importers and manufacturers, all of whom have a serious concern with the tax increases contained in S.1893 to fund a significant expansion of the State Children’s Health Insurance Program (SCHIP).

At the outset, it is important to understand that our organizations do not oppose the reauthorization of the SCHIP program which is otherwise scheduled to expire on September 30, 2007. Rather, it is the provision to substantially raise the federal excise tax on cigarettes, cigars, pipe tobacco, smokeless tobacco and roll-your-own tobacco that causes extreme economic concern among our members.

While the intent of the SCHIP program to provide health insurance to children in low income families is meritorious, S.1893 raises the federal excise taxes on tobacco products to absurdly high levels. Specifically, the Senate bill increases the federal tax rate on cigarettes, pipe tobacco and chewing tobacco by 156.4% and raises the maximum tax on little cigars by 2,635% and on large cigars by 6,000%. A tax increase of 6,000% would have a significant and detrimental inflationary impact when applied to any consumer product, not just tobacco.

The magnitude of these tax rate increases is unconscionable and has sparked outrage among our members and their customers. In the history of the United States, there has never been such an enormous tax increase on a single product.

While it may be politically popular to target tobacco products with such huge tax increases, fairness and the responsible use of the taxing power need to be a part of the SCHIP debate. As a united voice for convenience stores, gasoline service stations, grocery stores, tobacconists, truck stops, wholesalers, importers and manufacturers, our organizations are writing to urge restraint and common sense regarding the funding of the SCHIP program.

If the experience in other countries including Canada is any guide, the dramatic increase in the federal cigarette and tobacco excise taxes would create market conditions resulting in a substantial increase in counterfeit and illegal tobacco product trafficking. Any tax revenue gains would be offset by a large decrease in legal retail sales and a corresponding increase in black market and illegal, untaxed tobacco sales. In other words, the legislation would create a huge incentive for criminal activity. Moreover, this criminal environment would place the personal safety of store employees and wholesale company workers in jeopardy because the higher cost of tobacco products will surely generate more robberies, thefts and even delivery truck hijackings.

In addition, the unintended consequences of these tax increases include adversely affecting thousands of family-owned retail and wholesale businesses, forcing many to close due to significant sales declines, laying off untold numbers of retail and wholesale employees and imposing a further economic hardship by requiring retailers and wholesalers to pay a floor stocks tax on current inventory of all tobacco products. Finally, according to a Budget Options report issued by the Congressional Budget Office in February, 2007, increasing the federal excise tax rates will lead to a decrease in tobacco use with a corresponding and significant reduction in the excise taxes, sales taxes and national tobacco settlement payments received by the states.

Former U.S. Supreme Court Justice John Marshall once wrote that “The power to tax is the power to destroy.” The proposed tax increases in the House bill of more than 115% and upwards of 2,197% are destined to destroy the freedom of Americans to enjoy legal tobacco products and the right of Americans to earn a living by operating family-owned retail stores and wholesale businesses.

We urge you to take these concerns under consideration as you deliberate further on the SCHIP reauthorization legislation. Thank you for your time.