Tuesday, January 21, 2003

Sin taxes 1st in line to go up

Taft looks for ways to cover budget deficit

By Spencer Hunt
Enquirer Columbus Bureau

COLUMBUS - Ohioans who smoke and drink may have to dig deeper in their pockets to help balance the state's checkbook.

In his fifth State of the State address Wednesday, Gov. Bob Taft will ask lawmakers to raise taxes on cigarettes, beer, wine and liquor to help wipe out an estimated short-term deficit of $720 million. Cigarette taxes were raised 31 cents a pack in July.

Likening the budget dilemma to a "perfect storm" threatening state government, Mr. Taft will also order $151 million in budget cuts that could close two state prisons, a juvenile detention center and eliminate the Conservation Corps - a $7 million program for troubled youth.

He also will propose to raid a reserve fund and make some accounting changes to get cash.

These measures are designed to get the budget in balance by June 30, when the state's fiscal year ends. But an even bigger, $4 billion deficit looms in the two-year budget that starts July 1.

For that, Mr. Taft may ask lawmakers to broaden sales taxes to include services not already taxed, such as fees charged by lawyers and accountants, and even health club memberships. He may also freeze funding for Medicaid, the state's health insurance program for the poor and uninsured.

The governor's spokesman, Orest Holubec, said the tax increases on cigarettes and alcohol must be passed now to stave off even deeper budget cuts to schools, universities, senior programs and job creation initiatives.

"He considers these areas to be off-limits," Mr. Holubec said. "If the governor cannot get the additional revenues he's seeking, he'd be forced to make (these) cuts."

Conservative lawmakers aren't convinced.

"I think a great majority of people are going to want to see major government reforms before we jump off the tax-raising cliff," said Rep. Timothy Grendell, R-Chesterland.

The governor also faces a big fight from a newly formed alliance of retailers, grocers and beer wholesalers who say Mr. Taft's plan would send thousands of Cincinnati-area smokers and drinkers south of the state's border.

"We're pretty much losing all the cigarette market to Kentucky. I guess they want to move the rest away," said Josh Sanders, a lobbyist for the Ohio Council of Retail Merchants. "They're going to tax our people to death."

Although details on specific increases were not available, the governor's plan calls for raising $161 million through June 30 from tax increases.

Ohioans pay a 55-cent tax on a pack of cigarettes, up from 24 cents a pack in June. That increase helped Ohio collect $295.5 million in cigarette taxes over the past six months, more than twice the $132 million collected during the first six months of the previous fiscal year.

Tax rates on liquor haven't gone up since 1992, according to the Department of Taxation. Consumers pay about 10 cents in tax for a six-pack of beer, 32 cents per gallon of wine and $3.38 per gallon of hard liquor.

Kentucky residents pay 3 cents per pack tax on cigarettes, although Gov. Paul Patton has said a 20-cent increase may be needed to balance the commonwealth's budget. Mr. Patton also suggested it may be necessary to increase beer and liquor taxes.

A comparable rate for beer taxes was unavailable, but 2001 estimates show Kentucky charges 50 cents for a gallon of wine and $1.92 per gallon of liquor.

Ohio retailers and alcohol wholesalers say tobacco and alcohol taxes have become an easy target for politicians who see them as affecting a narrow segment of the voting population. They also dispute the notion that Ohioans will continue to buy cigarettes and beer, no matter the price.

Andy Herf, a lobbyist for the Wholesale Wine and Beer Association of Ohio, said family-owned liquor and convenience stores may lose so much business to out-of-state stores that they will be forced to close.

"This will put retailers in the border areas at an economic disadvantage to the point where some won't survive," Mr. Herf warned.

"Our fear is they could be talking about doubling or tripling these taxes."

At the Riddle Road Market in University Heights, owner John Ashton said a large part of his sales are cigarettes and beer sold to customers in a Cincinnati neighborhood full of college students.

Mr. Ashton said the idea of raising taxes on cigarettes, beer and wine to make up a state budget deficit is "a sham.''

"It's just a politically expedient way for Taft and the politicians to raise money,'' said Mr. Ashton.

Politicians, Mr. Ashton said, will cloak their support of so-called "sin taxes'' by saying that it discourages the use of tobacco and alcohol.

"That's just nonsense,'' he said. "People are going to use these products, no matter what.''

Tom Jackson, president of the Ohio Grocers Association, said retailers can lose a lot of business to cross-border sales.

"If we continue to raise the price of these products up, at what point does it become a bad buy for Ohioans?"

According to manager Dan Vogel, cigarette sales at the Covington Tobacco Shop, just across the Clay Wade Bailey Bridge from the Ohio shore, jumped significantly last spring when the Ohio General Assembly slapped an additional 31 cents in taxes on each pack of cigarettes sold.

Mr. Vogel said he would anticipate another jump in sales if Ohio passes another tax increase on tobacco products.

State Rep. Tom Brinkman, R-Cincinnati, said there's nothing the governor can say to convince him to support higher taxes.

"I honestly believe that there is so much that we can cut from state government, that the Joe Blow, honest citizen would not miss a single thing," Mr. Brinkman said. "There is a tremendous amount of areas in which we could hone in and cut."

Rep. Ed Jerse, D-Euclid, ranking minority party member of the House Finance Committee, said Democrats will want to know where any new tax dollars would be spent.

"We're not going to give votes to a tax increase just so some members of the far right in the Republican caucus can vote no and then go back and say to their voters and say, `I'm still pure,'" Mr. Jerse said.

Howard Wilkinson contributed to this report. E-mail shunt@enquirer.com

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