Tobacco taxes could be a piece of budget revenue puzzle

Tobacco taxes could be a piece of budget revenue puzzle

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House GOP leaders are considering running a cigarette tax increase to kickstart budget talks this spring, according to Republican sources.

One Republican source with knowledge of a private leadership conference call on Monday said a cigarette tax increase, which the source described as a “low-hanging fruit” revenue increase, probably enjoys the widest support in the House, as opposed to tougher votes like increasing broad-based taxes or a severance tax.

Details of the proposal are scarce. But a tobacco levy package proposed by Gov. Tom Wolf this year could generate upwards of $618.9 million, according to the Independent Fiscal Office. Gov. Wolf’s $1 per cigarette pack increase would generate $472.2 million, with additional revenues coming from a 40-percent tax on the wholesale price of other tobacco products, including smokeless tobacco, large cigars, loose tobacco, and e-cigarettes, which would generate another $146.7 million.

But the Republican source suggested the cigarette tax proposal, which was brought by House Speaker Mike Turzai, R-Allegheny, also could be seen “as a way to say we passed a revenue increase” and then undercut what is likely to be a push – from Gov. Wolf and allies – for greater tax increases in upcoming budget negotiations.

Steve Miskin, spokesman for House Majority Leader Dave Reed, R-Indiana, downplayed that claim, saying the proposal was mentioned along with other revenue proposals. He stressed the leadership doesn’t support broad-based tax increases, such as a personal income tax or sales tax hike. He also said he was unaware of a plan to run a tax code bill next week.

On April 25, during his Pennsylvania Press Club appearance, House Appropriations Committee Majority Chairman Bill Adolph, R-Delaware, said it’s not easy to get a revenue bill approved, but it’s likely to be necessary for the 2016-17 budget.

“You need 103 votes in the House and 26 votes in the Senate to get a bill with revenue to the governor’s desk,” said Adolph.

“If it’s $1.3 billion, $1.4 billion or $1.5 billion … for the structural deficit, you’re going to need some revenue,” Adolph continued.

“Does it have to be a broad-based tax, meaning an increase in PIT or an increase in sales tax?” Adolph asked rhetorically, then noting internet gaming could be a source of “a couple hundred million dollars” in revenue. GOP and Democratic leaders in the Senate have yet to warm to such an idea, however.

“You may see some cigarette taxes – I know there are some folks here from the heart and cancer societies that support increased tobacco taxes,” added Adolph.

In early December during the impasse, when House Republicans proposed their own $30.3 billion budget, they also proposed a combination of tobacco and gaming taxes that they said would have generated a bit more than $600 million in additional recurring revenue.

“You may be able to get there [covering the structural deficit] without a broad-based tax,” Adolph said. “I do believe – it’s just my opinion – that there’s going to be some type of revenue increase in order to balance the budget this year.”

Of course, that also assumes a budget with a spend number that increases at no more than 3 to 3.5 percent (or no more than about $1 billion) over the 2015-16 budget ($30.031 billion), said Adolph.

Adolph acknowledged such a spending increase wouldn’t leave much room for new expenditures, instead covering, for the most part, mandatory spending increases for things like pensions, corrections and Medicaid.

Gov. Wolf’s 2016-17 spending plan offered in February – based on the assumption he would get $30.8 billion in spending for 2015-16 – proposed $33.3 billion in expenditures and $2.72 billion in new recurring revenue derived from a variety of tax changes, including a PIT hike, an expansion of the sales tax, tobacco taxes and a severance tax.

Budget talks are expected to pick up in earnest during the next few weeks as all sides have said they would like to avoid another drawn out budget fight.