President's Perspective
Cigarette tax is the ticket

One of the common refrains we have heard from legislators this session whenever the topic of Medicaid has come up (and it has come up often, believe me) is that they really want to help, but the state just doesn’t have the money. As we all know too well, the state is facing a budget deficit of more than $1 billion. They are not alone when it comes to financial problems, however.

President's Perspective By Breeden Blackwell President's Perspective Archive

Counties across this state are dealing with exploding expenses, not only for Medicaid, but also for school construction needs because of recent unfunded mandates by the General Assembly to reduce class size in the lower grades. Several counties are considering double-digit tax increases, with most of the new revenue devoted to school demands and Medicaid.

Unlike counties, the state has a wide array of resources at its disposal. At our Legislative Goals Conference in January, our membership found a solution that would help both counties and the state – increasing the cigarette tax and using some of the proceeds to fund Medicaid relief.

North Carolina’s current tax of 5 cents per pack became the lowest rate in the country June 1 when Kentucky’s tax increased 27 cents to 30 cents per pack. The state last increased its cigarette tax in 1991. According to the Federation of Tax Administrators, the median cigarette tax in the United States is now 69.5 cents, and the average cigarette tax is 84.5 cents per pack.

A significant increase in the cigarette tax would represent sound public policy in two ways: it would discourage more children from taking up a deadly habit, and it would curb the state’s drastically rising health care costs. According to the National Center for Tobacco-Free Kids, North Carolina’s youth smoking rate is 24.8 percent, significantly higher than the national average of 21.9 percent and higher than 32 other states.

Using the proceeds generated by an increased cigarette tax to relieve counties of their Medicaid burden would be appropriate, because health problems caused by cigarette smoking are a driving factor of Medicaid costs. The U.S. Centers for Disease Control estimate that each pack of cigarettes purchased results in health-care costs of $7.18.

Five cents of the cigarette tax would generate enough revenue to cap county Medicaid costs at 2004-05 levels. A few pennies more, and there would be enough to provide some additional targeted relief to the hardest hit counties.

Instead of cutting Medicaid services, as the Senate budget proposes, the state should be looking for ways to reduce future Medicaid expenses. An increased cigarette tax would accomplish that objective and would also lead to healthier, better-educated children.