Long, sad article. I hate Rendell...
Timing may be right for state to institute tax on snuff, cigars
Monday, February 26, 2007
By Bill Toland, Pittsburgh Post-Gazette
Kentucky, North Carolina and the rest of Appalachia's tobacco-rich states collect an excise tax on chew, snuff and cigars. With just a few exceptions, so does the rest of the country.
Not so in Pennsylvania, where an eclectic but effective mix of politicians, lobbyists and tobacco farmers has been able to block it for two decades.
Gov. Ed Rendell says he wants to change that. He's proposing an excise tax -- on top of the existing sales tax -- at a rate of 36 cents per ounce of smokeless tobacco and roughly 3.6 cents per cigar. It's part of his "Prescription for Pennsylvania" plan to raise $151 million to improve health care.
It would seem that the Democratic governor's timing is right. Former legislative powerhouses like Rep. Mike Veon, D-Beaver Falls, known for his after-hours cigar sessions, and Sens. Chip Brightbill of Lebanon County and Noah Wenger of Lancaster County, who helped to scotch plans to collect a tobacco excise tax in the past, no longer roam the Capitol halls as lawmakers.
But the governor can still expect a fight from the usual combatants, who remarkably have succeeded in keeping the state Treasury Department from dipping into non-cigarette tobacco products, even as the excise rate on cigarettes continued to rise, from 30 cents a pack in 2001 to $1.35 a pack today -- and maybe $1.45 later this year.
The smokeless tobacco tax has been defeated over the years because chew and snuff is used by "NASCAR-loving, blue collar, salt-of-the-earth guys," according to claims by lobbyist Dick Gmerek of the WolfBlock law and consulting firm, which represents U.S. Smokeless Tobacco Co.
The Greenwich, Conn., company makes high-end snuff brands Skoal and Copenhagen, as well as discount-brand chewing tobacco. The company also has retained Mr. Veon, the former Democratic House whip who recently announced the formation of his own lobbying firm.
Mr. Gmerek says the determination of the NASCAR crowd, coupled with protests from small-time tobacco farmers in Lancaster, Lebanon, Berks and Chester counties, has convinced lawmakers and, more importantly, governors that a tax on smokeless tobacco wasn't worth the fight.
One of those farmers is Lancaster County's Dennis Hess.
"When something is taxed, the tax is ... passed along to the farmer," said Mr. Hess, who grew tobacco for a quarter-century before giving it up six years ago. "That's pretty much farming in general. They can only take the consumer up so far."
So the tobacco growers -- some of them family farms, many of them Amish and Mennonite -- have been persuasive. This prevails, despite the facts that the state's tobacco crop, at 16 million pounds in 2006, is small compared to that of the big-time players, that 90 percent or more of what's grown in Pennsylvania is consumed out of state, where cigars and smokeless tobacco are already taxed, and that much of what's grown here today goes inside cigarettes, not just cigars and snuff.
Lancaster County now grows as much Maryland 609 and Southern Burley tobacco, used for cigarettes, as it does the traditional Pennsylvania 41, dark leaf used in cigars and chew.
It's helped the growers that for the last two decades, as two dozen other states moved to collect an excise tax on smokeless tobacco, the lobby has had the right leaders in the right places in Pennsylvania. Mr. Veon has been against a tax on cigars and smokeless tobacco for his "whole career," he said last week.
Then there's Mr. Wenger, who retired from the state Senate in December. The longtime politician's name invariably is brought up when discussing why Pennsylvania is without an excise tax on smokeless tobacco. Mainly because so many of the farms were in his back yard, the Lancaster County Republican was the conduit through which tobacco tax proposals were vetted in the Senate.
"I think we were protecting a local industry, all the way from the tobacco farmers" down to the retailers, Mr. Wenger said. Retailers in Pennsylvania, especially on high-end cigars, have a big advantage over sellers in other states, which collect taxes at rates as high as 75 percent of the product's wholesale price.
Cigars International, which does sales of up to $30 million annually according to The Associated Press, moved to Bath in Northampton County, north of Allentown, in part because there's no excise tax in this state. There are also wholesale dealers in Berwick, King of Prussia, Scranton and elsewhere.
"They're there because Pennsylvania doesn't have a cigar tax," said Norman Sharp, president of the Cigar Association of America. He noted that Pennsylvania and the cigar industry are historically intertwined, so much so that "stogie," a common name for a cigar, is derived from the name of a small Lancaster County town called Conestoga. Until the 1970s, Pennsylvania's filler tobacco was the filler used by many of America's top cigars.
That's why the industry deserves special protection, says Mr. Wenger.
The former senator, like many of his colleagues, was often on the receiving end of campaign donations from the tobacco industry and its lobbying efforts, according to an analysis by anti-tobacco activist Bill Godshall. R.J. Reynolds and its Brown and Williamson parent, Philip Morris and U.S. Smokeless Tobacco have all been active in direct contributions to political campaigns, as well as lobbying, his report says.
Swisher International, the cigar maker, and Conwood Co., which makes Kodiak long-cut snuff and Levi Garrett loose-leaf tobacco, have plied the gilded halls of the Capitol. There also are lesser-known groups -- the Tobacco and Candy PAC, the Cigar Association of America and some vending outfits -- that have been active in lobbying or campaign fund raising in recent years.
House and Senate leaders have been the top beneficiaries of the tobacco companies' largesse, with names like indicted state Sen. Vincent Fumo, Mr. Brightbill and former Senate President Pro Tem Robert Jubelirer atop the Senate list. In the 2000-2002 election cycle, for example, Mr. Fumo received at least $26,000 from tobacco PACs and manufacturers; Mr. Brightbill, $24,000; Mr. Jubelirer, at least $12,000.
Former House Speaker John Perzel, Rep. Dwight Evans, House Democratic leader Bill DeWeese and Mr. Veon are the House winners, with Philadelphia-area legislators receiving tens of thousands of dollars over the years from tobacco manufacturers and their political action committees.
In the same election cycle, Mr. Perzel got at least $47,000 and Mr. Veon $8,000, and that doesn't include money from the smaller cigar makers and distributors. Bloom Cigars gave Mr. Veon at least $2,000 worth of cigars last year, for example, plus $500 from Holt Cigar in Philadelphia.
It all adds up to a resistance that's been remarkably effective, especially given that Pennsylvania is the last holdout on taxing smokeless tobacco and one of just three states that does not collect an excise on cigars. (Florida and New Hampshire are the others.)
They've managed to stave off not just the tax man, but also health advocates who argue that smokeless tobacco should be taxed just like cigarettes to defray the public's health care obligations.
Yet plenty of other states -- especially in Appalachia -- have NASCAR fans, tobacco farmers and cigar-champing politicians. Why have they been able to agree on an excise tax on cigars and such, while Pennsylvania hasn't?
In large part, it's because no Pennsylvania governor -- until this year, perhaps -- thought the minimal payoff was worth the hassle of offending the snuff-dippers, Amish farmers and mid-state lawmakers who have their backs. Mr. Rendell pondered a tax in 2003, his first year in office, but never made a big issue of it, and the smokeless tobacco levy was lost in the debate over new education funding and the increase in the income tax rate.
Before that, during the 2002 budget debate, the tobacco lobby defeated Gov. Mark Schweiker's proposal to collect a tax. He was a lame-duck governor, sitting in for the departed Gov. Tom Ridge, and didn't have much to gain by going to the mattresses for a smokeless tobacco tax. Instead, he won a major increase in the per-pack cigarette tax.
"It's a miracle that smokeless has been able to hold it off that long," said a GOP insider with ties to the Ridge and Schweiker administrations. This year, he said, "their goose is cooked."
Why? It's a different economic climate than that of the high-revenue Clinton-Ridge years, and with Mr. Rendell proposing so many new taxes -- a sales tax increase, an oil company profits tax, a garbage tax, an electric bill tax -- legislative opponents might look the other way on cigar and smokeless tobacco levies so they can fight the more far-reaching taxes.
There are enough votes in the House and Senate, according to several lobbyists privy to straw polls, for new tobacco taxes.
But it's still not a slam dunk. This time, the traditional opponents to a smokeless tobacco tax will have a new, powerful ally -- the two big cigarette companies, Philip Morris and R.J. Reynolds. That's because both companies have introduced tobacco pouches: smokeless, spit-less tobacco in a dime-size packet that sits in your mouth. The products are part of the companies' strategies to combat declining U.S. cigarette sales by distributing non-cigarette, tobacco-based products.
Both companies have introduced the pouches in limited markets, but expect a wider rollout soon. Philip Morris' version, called Taboka, will be produced for mass consumption at a plant in Virginia, but no word on when production begins. R.J. Reynolds, in addition to testing its own line of smokeless Camel pouches -- called "snus," which rhymes with goose -- recently purchased the Conwood tobacco company.
"I'm sure we'll oppose both taxes," the one on smokeless tobacco and cigars and the proposed increase on cigarettes, said John Singleton, spokesman for R.J. Reynolds. "We have substantial business in both areas."
The Conwood line now makes up about 16 percent of Reynolds' overall revenue, and Pennsylvania, because of its size, is a big tobacco customer.
The governor's office hasn't said how much it thinks the new taxes will raise, mainly because it's not sure how much smokeless tobacco and how many cigars are sold each year, but a Pittsburgh Post-Gazette review of the governor's proposed 2007-08 budget suggests Mr. Rendell hopes to raise from $30 million to $40 million annually.
Timing may be right for state to institute tax on snuff, cigars
Monday, February 26, 2007
By Bill Toland, Pittsburgh Post-Gazette
Kentucky, North Carolina and the rest of Appalachia's tobacco-rich states collect an excise tax on chew, snuff and cigars. With just a few exceptions, so does the rest of the country.
Not so in Pennsylvania, where an eclectic but effective mix of politicians, lobbyists and tobacco farmers has been able to block it for two decades.
Gov. Ed Rendell says he wants to change that. He's proposing an excise tax -- on top of the existing sales tax -- at a rate of 36 cents per ounce of smokeless tobacco and roughly 3.6 cents per cigar. It's part of his "Prescription for Pennsylvania" plan to raise $151 million to improve health care.
It would seem that the Democratic governor's timing is right. Former legislative powerhouses like Rep. Mike Veon, D-Beaver Falls, known for his after-hours cigar sessions, and Sens. Chip Brightbill of Lebanon County and Noah Wenger of Lancaster County, who helped to scotch plans to collect a tobacco excise tax in the past, no longer roam the Capitol halls as lawmakers.
But the governor can still expect a fight from the usual combatants, who remarkably have succeeded in keeping the state Treasury Department from dipping into non-cigarette tobacco products, even as the excise rate on cigarettes continued to rise, from 30 cents a pack in 2001 to $1.35 a pack today -- and maybe $1.45 later this year.
The smokeless tobacco tax has been defeated over the years because chew and snuff is used by "NASCAR-loving, blue collar, salt-of-the-earth guys," according to claims by lobbyist Dick Gmerek of the WolfBlock law and consulting firm, which represents U.S. Smokeless Tobacco Co.
The Greenwich, Conn., company makes high-end snuff brands Skoal and Copenhagen, as well as discount-brand chewing tobacco. The company also has retained Mr. Veon, the former Democratic House whip who recently announced the formation of his own lobbying firm.
Mr. Gmerek says the determination of the NASCAR crowd, coupled with protests from small-time tobacco farmers in Lancaster, Lebanon, Berks and Chester counties, has convinced lawmakers and, more importantly, governors that a tax on smokeless tobacco wasn't worth the fight.
One of those farmers is Lancaster County's Dennis Hess.
"When something is taxed, the tax is ... passed along to the farmer," said Mr. Hess, who grew tobacco for a quarter-century before giving it up six years ago. "That's pretty much farming in general. They can only take the consumer up so far."
So the tobacco growers -- some of them family farms, many of them Amish and Mennonite -- have been persuasive. This prevails, despite the facts that the state's tobacco crop, at 16 million pounds in 2006, is small compared to that of the big-time players, that 90 percent or more of what's grown in Pennsylvania is consumed out of state, where cigars and smokeless tobacco are already taxed, and that much of what's grown here today goes inside cigarettes, not just cigars and snuff.
Lancaster County now grows as much Maryland 609 and Southern Burley tobacco, used for cigarettes, as it does the traditional Pennsylvania 41, dark leaf used in cigars and chew.
It's helped the growers that for the last two decades, as two dozen other states moved to collect an excise tax on smokeless tobacco, the lobby has had the right leaders in the right places in Pennsylvania. Mr. Veon has been against a tax on cigars and smokeless tobacco for his "whole career," he said last week.
Then there's Mr. Wenger, who retired from the state Senate in December. The longtime politician's name invariably is brought up when discussing why Pennsylvania is without an excise tax on smokeless tobacco. Mainly because so many of the farms were in his back yard, the Lancaster County Republican was the conduit through which tobacco tax proposals were vetted in the Senate.
"I think we were protecting a local industry, all the way from the tobacco farmers" down to the retailers, Mr. Wenger said. Retailers in Pennsylvania, especially on high-end cigars, have a big advantage over sellers in other states, which collect taxes at rates as high as 75 percent of the product's wholesale price.
Cigars International, which does sales of up to $30 million annually according to The Associated Press, moved to Bath in Northampton County, north of Allentown, in part because there's no excise tax in this state. There are also wholesale dealers in Berwick, King of Prussia, Scranton and elsewhere.
"They're there because Pennsylvania doesn't have a cigar tax," said Norman Sharp, president of the Cigar Association of America. He noted that Pennsylvania and the cigar industry are historically intertwined, so much so that "stogie," a common name for a cigar, is derived from the name of a small Lancaster County town called Conestoga. Until the 1970s, Pennsylvania's filler tobacco was the filler used by many of America's top cigars.
That's why the industry deserves special protection, says Mr. Wenger.
The former senator, like many of his colleagues, was often on the receiving end of campaign donations from the tobacco industry and its lobbying efforts, according to an analysis by anti-tobacco activist Bill Godshall. R.J. Reynolds and its Brown and Williamson parent, Philip Morris and U.S. Smokeless Tobacco have all been active in direct contributions to political campaigns, as well as lobbying, his report says.
Swisher International, the cigar maker, and Conwood Co., which makes Kodiak long-cut snuff and Levi Garrett loose-leaf tobacco, have plied the gilded halls of the Capitol. There also are lesser-known groups -- the Tobacco and Candy PAC, the Cigar Association of America and some vending outfits -- that have been active in lobbying or campaign fund raising in recent years.
House and Senate leaders have been the top beneficiaries of the tobacco companies' largesse, with names like indicted state Sen. Vincent Fumo, Mr. Brightbill and former Senate President Pro Tem Robert Jubelirer atop the Senate list. In the 2000-2002 election cycle, for example, Mr. Fumo received at least $26,000 from tobacco PACs and manufacturers; Mr. Brightbill, $24,000; Mr. Jubelirer, at least $12,000.
Former House Speaker John Perzel, Rep. Dwight Evans, House Democratic leader Bill DeWeese and Mr. Veon are the House winners, with Philadelphia-area legislators receiving tens of thousands of dollars over the years from tobacco manufacturers and their political action committees.
In the same election cycle, Mr. Perzel got at least $47,000 and Mr. Veon $8,000, and that doesn't include money from the smaller cigar makers and distributors. Bloom Cigars gave Mr. Veon at least $2,000 worth of cigars last year, for example, plus $500 from Holt Cigar in Philadelphia.
It all adds up to a resistance that's been remarkably effective, especially given that Pennsylvania is the last holdout on taxing smokeless tobacco and one of just three states that does not collect an excise on cigars. (Florida and New Hampshire are the others.)
They've managed to stave off not just the tax man, but also health advocates who argue that smokeless tobacco should be taxed just like cigarettes to defray the public's health care obligations.
Yet plenty of other states -- especially in Appalachia -- have NASCAR fans, tobacco farmers and cigar-champing politicians. Why have they been able to agree on an excise tax on cigars and such, while Pennsylvania hasn't?
In large part, it's because no Pennsylvania governor -- until this year, perhaps -- thought the minimal payoff was worth the hassle of offending the snuff-dippers, Amish farmers and mid-state lawmakers who have their backs. Mr. Rendell pondered a tax in 2003, his first year in office, but never made a big issue of it, and the smokeless tobacco levy was lost in the debate over new education funding and the increase in the income tax rate.
Before that, during the 2002 budget debate, the tobacco lobby defeated Gov. Mark Schweiker's proposal to collect a tax. He was a lame-duck governor, sitting in for the departed Gov. Tom Ridge, and didn't have much to gain by going to the mattresses for a smokeless tobacco tax. Instead, he won a major increase in the per-pack cigarette tax.
"It's a miracle that smokeless has been able to hold it off that long," said a GOP insider with ties to the Ridge and Schweiker administrations. This year, he said, "their goose is cooked."
Why? It's a different economic climate than that of the high-revenue Clinton-Ridge years, and with Mr. Rendell proposing so many new taxes -- a sales tax increase, an oil company profits tax, a garbage tax, an electric bill tax -- legislative opponents might look the other way on cigar and smokeless tobacco levies so they can fight the more far-reaching taxes.
There are enough votes in the House and Senate, according to several lobbyists privy to straw polls, for new tobacco taxes.
But it's still not a slam dunk. This time, the traditional opponents to a smokeless tobacco tax will have a new, powerful ally -- the two big cigarette companies, Philip Morris and R.J. Reynolds. That's because both companies have introduced tobacco pouches: smokeless, spit-less tobacco in a dime-size packet that sits in your mouth. The products are part of the companies' strategies to combat declining U.S. cigarette sales by distributing non-cigarette, tobacco-based products.
Both companies have introduced the pouches in limited markets, but expect a wider rollout soon. Philip Morris' version, called Taboka, will be produced for mass consumption at a plant in Virginia, but no word on when production begins. R.J. Reynolds, in addition to testing its own line of smokeless Camel pouches -- called "snus," which rhymes with goose -- recently purchased the Conwood tobacco company.
"I'm sure we'll oppose both taxes," the one on smokeless tobacco and cigars and the proposed increase on cigarettes, said John Singleton, spokesman for R.J. Reynolds. "We have substantial business in both areas."
The Conwood line now makes up about 16 percent of Reynolds' overall revenue, and Pennsylvania, because of its size, is a big tobacco customer.
The governor's office hasn't said how much it thinks the new taxes will raise, mainly because it's not sure how much smokeless tobacco and how many cigars are sold each year, but a Pittsburgh Post-Gazette review of the governor's proposed 2007-08 budget suggests Mr. Rendell hopes to raise from $30 million to $40 million annually.
