Tobacco Tax Fact Check

The misinformation that comes out of the Policy and Budget Center (PBC) amazes me. Here is the first post of a two-part fact-checking on taxing smokeless tobacco products and cigars. PBC states:

Pennsylvania is one of only two states to exempt cigars from taxation…Pennsylvania’s failure to tax tobacco products other than cigarettes is…in effect a subsidy for the tobacco industry.

It would appear that PBC is not familiar with the definitions of a subsidy (or a “tax break,” for that matter). All tobacco products are subject to the states 6% sales tax; no exemptions. Smokeless tobacco products and cigars do not have a special tax aimed directly at them; however, simply not imposing an excise tax no other product is subject to is not the same as offering a subsidy.

Tobacco production in Pennsylvania peaked in 1918 and has been declining for almost a century. Over that time, the number of acres devoted to tobacco farming has declined by 83%, and annual production is down by 74%. Of the 63,000 farms in Pennsylvania, 1,150 grow tobacco – fewer than 2% of farms in the state.

The idea that a tax is okay because only a few farmers will be harmed is the tyranny of the majority our founder feard. There are 1,151 tobacco farms in the state; the majority of these farms are less than 7 acres  because small tobacco farmers, many of whom are Amish or Mennonite, grow tobacco as supplementary income to cover annual real estate taxes and to keep their farms in production. The effects this tax will have on them are significant and should not be overlooked.

Further, many crops used less acres in 2009 than in 1918. Acres for harvesting oat crops decreased by 93% and wheat by 86%. During that same period, the value of production for tobacco in Pennsylvania increased 137% to $31,239,000 in 2010.  According to Census data, Pennsylvania is the only tobacco farming state that gained farms from 2002 to 2007.

Finally, a tax on tobacco products hurts not only farmers, but tobacco retailers, many of whom set up shop in Pennsylvania because of the lack of a tax.  With unemployment at a 25-year high, the 1,600 wholesales jobs tobacco products employee are significant. If Cigars International, with 150 employees, moves to Florida (there’s no cigar tax there either), it will certainly have a ripple effect. 

Lawmakers should not discount the jobs Pennsylvania could lose if this tobacco tax is imposed.

Read more on the Pennsylvania State Budget and other tax proposals.