Tobacco tax should not support new program

Published 10:04 pm Wednesday, December 18, 2013

By Jeff D. Smith III

By almost any metric, the commonwealth of Virginia has one of the nation’s strongest, most stable economies.

While Northern Virginia is known for its government agencies, contractors, and financial services firms, other parts of the state still rely on the industries that have driven the state’s economy since its founding — agriculture and shipping.

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The fields of Southside Virginia still produce the nation’s first cash crop — tobacco — just as they did four centuries ago, and our bustling ports in Tidewater are still a primary outlet for domestic and international trade.

Through the years, Virginia’s diversified economy and commitment to fiscal responsibility have largely insulated it from the economic and financial problems many other states have encountered. Our legislators in Richmond have employed a disciplined approach when formulating our state budget and determining what can and cannot be paid for.

As a result, Virginia has largely avoided the budgetary crises and capital flight that routinely plague other states.

However, a new government spending program introduced by President Obama could put our state legislators in a difficult position in the coming years. The program, designed to expand access to early education, would be funded by a mix of federal and state taxpayer dollars.

The federal government, which has pledged $75 billion to the effort, would fund the majority of the program in year one, but by year 10, the participating states would be obligated to cover three-fourths of the program’s cost. As Washington’s responsibility diminishes, Virginia’s would grow tremendously if it elects to participate.

The issue with this program is obviously not its intent — early education has practically unanimous support — it is its federal funding mechanism and its growing reliance on state dollars.

The federal government plans to raise the aforementioned $75 billion by increasing the per-pack federal excise tax on cigarettes by $0.94 to $1.95, a 93-percent increase.

This is problematic, because tobacco tax increases often bring in less tax revenue than predicted, largely because they encourage some adult tobacco consumers to seek out cheaper alternatives for which taxes are lower or may not be collected at all.

If there is an increase in black-market sales, and the federal government does not collect enough revenue from the tax increase, the federal or state government, or both, could resort to other tax increases to fill the funding gap.

State tax dollars are already a precious commodity, and our legislators work hard to ensure they are spent wisely. Committing Virginia to a program with an uncertain future price tag that is reliant on a declining, unstable source of tax revenue would be imprudent.

President Obama and Congress should work together to find a better way to fund this program. Virginia has learned to live within its means and balance a budget. The federal government should do the same.

Jeff D. Smith III is executive vice president of the Virginia Wholesalers and Distributors Association, the statewide business trade group representing the interests of corporations and individuals involved in the manufacturing, sales, and distribution of convenience and grocery store products. Email him at