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STATEMENT OF CONGRESSMAN L.F. PAYNE ON THE ADMINISTRATION'S FINANCING PROVISIONS FOR HEALTH REFORM BEFORE THE WAYS AND MEANS COMMITTEE NOVEMBER 18, 1993 MR. CHAIRMAN, I AM GRATEFUL FOR THE OPPORTUNITY TO ADDRESS THE COMMITTEE ON THE PRESIDENT'S PROPOSALS FOR FINANCING HIS HEALTH CARE REFORM PACKAGE. THE PRESIDENT PROPOSES TO INCREASE THE FEDERAL EXCISE TAX ON CIGARETTES BY 312%, ON CHEWING TOBACCO BY OVER 10,000 %, ON SMOKELESS TOBACCO BY 3,400% AND ON PIPE TOBACCO BY 1,800%. OTHER THAN A PROPOSED ASSESSMENT OF 1% OF PAYROLL ON LARGE CORPORATIONS OPTING OUT OF THE NEW HEALTH ALLIANCES, THE PRESIDENT PROPOSES NO OTHER FEDERAL TAX INCREASES TO PAY FOR HIS PLAN. THIS COMMITTEE FACES THE CHALLENGE OF FINDING THE MEANS TO PAY FOR WHAT THE AMERICAN PEOPLE WANT: UNIVERSAL ACCESS TO AFFORDABLE HEALTH CARE. THE FIRST STEP IN PERFORMING OUR TASK IS DECIDING WHETHER THE PRESIDENT'S FINANCING PROPOSALS ARE FAIR AND ECONOMICALLY REASONABLE. I BELIEVE THE PROPOSALS ARE NOT FAIR AND NOT ECONOMICALLY REASONABLE ON THREE LEVELS: THE INDIVIDUAL TOBACCO FARMER, THE TOBACCO GROWING-REGIONS OF THE RURAL SOUTH, AND THE NATIONAL ECONOMY. TODAY THERE ARE 55,000 FLUE CURED TOBACCO FARMS IN AMERICA. NEARLY 4,500, OR 8%, OF THEM ARE IN MY DISTRICT. TODAY AND TOMORROW YOU WILL HEAR TESTIMONY FROM.SOME OF THESE TOBACCO FARMERS. I URGE YOU TO LISTEN CAREFULLY TO THE TESTIMONY OF WAYNE ASHWORTH, DONNIE ANDERSON, AND MATTIE MACK. IF YOU LISTEN CAREFULLY, YOU WILL LEARN THAT TOBACCO IS THE LAST BASTION OF THE AMERICAN FAMILY FARM. THIS IS DUE TO HISTORICAL AND PRODUCTION FACTORS. THE AVERAGE TOBACCO FARMER GROWS ONLY ABOUT FIVE ACRES OF TOBACCO. BUT, TOBACCO IS A VERY LABOR-INTENSIVE CROP. EACH ACRE REQUIRES ABOUT 200 HOURS OF LABOR AND CAN YIELD A REASONABLE PROFIT. THIS MAKES THE SMALL FARM OPERATED BY A SINGLE FAMILY THE IDEAL PRODUCTION UNIT. LIKE OTHER AMERICAN FAMILIES, TOBACCO FARMERS ARE PAYING MORTGAGES, PAYING OFF LOANS USED TO PURCHASE THE EQUIPMENT THAT WORKS THE LAND, AND TRYING TO SAVE ENOUGH SO THAT THEIR CHILDREN CAN GO TO COLLEGE. A 1992 PRICE WATERHOUSE STUDY FOUND THAT VIRGINIA HAS OVER 11,000 TOBACCO GROWING JOBS. BASED ON THIS STUDY, THE TOBACCO INSTITUTE ESTIMATES, AND PRICE WATERHOUSE HAS FOUND ITS METHODOLOGY REASONABLE, THAT THE ADMINISTRATION'S PROPOSED TAX INCREASE WOULD COST ABOUT 1,400 OF THESE JOBS. MANY OF THE 4,500 FARMERS IN MY DISTRICT MAY BE ON THE CASUALTY LIST. THE LOSS OF THESE FARMERS LEADS TO THE NEXT LEVEL OF CONCERN ABOUT THE FAIRNESS AND ECONOMIC REASONABLENESS OF THE PRESIDENT'S PROPOSALS - THE REGIONAL LEVEL. WHEN THE FARMERS FAIL, THE COMMUNITIES OF WHICH THEY ARE A PART WILL BE SEVERELY STRESSED. WHERE WILL THE EQUIPMENT DEALERS AND SERVICERS, THE FARM SUPPLIERS, THE BANKERS, THE WAREHOUSERS, THE GRADERS, AND THE PROCESSING WORKERS EARN THE INCOME TO MEET THEIR FINANCIAL OBLIGATIONS AND SUPPORT THEIR FAMILIES? THE TOBACCO GROWING REGIONS OF THE THE RURAL SOUTH HAVE DEPENDED ON TOBACCO FOR CENTURIES AS THE FOUNDATION OF ECONOMIC AND SOCIAL

LIFE. TO DATE, NO VIABLE ALTERNATIVES ARE EVEN ON THE HORIZON, THESE TAX INCREASES WOULD HAVE AN IMMEDIATE EFFECT. AND THE PRICE WATERHOUSE STUDY FOUND THAT VIRGINIA HAS OVER 29,500 ~ ~:=. TOBACCO "CORE SECTOR" JOBS AND ABOUT 15,000 "SUPPLIER" JOBS. SECTOR" JOBS ARE JOBS IN THE ACTUAL PRODUCTION, MANUFACTURE DISTRIBUTION OF TOBACCO PRODUCTS. "SUPPLIER" JOBS ARE THOSE "CORE AND MAKING THE GOODS AND SERVICES USED IN MAKING TOBACCO PRODUCTS. I ASK YOU TO LISTEN CAREFULLY TO THE TESTIMONY LATER TODAY OF SEWARD ANDERSON, THE MAYOR OF DANVILLE VIRGINIA, ON THE EFFECTS THIS TAX WILL HAVE IN DANVILLE. THE EFFECTS RANGE FROM A REDUCTION IN THE CITY'S BOND RATING; TO A STRUGGLE TO PROVIDE BASIC SOCIAL SERVICES FOR THE NEWLY UNEMPLOYED; TO A SHARPLY REDUCED REVENUE BASE IN PROPERTY TAXES, MEAL TAXES AND SALES TAXES. FINALLY, IN JUDGING THE FAIRNESS AND ECONOMIC REASONABLENESS OF THE PRESIDENT'S PLAN, I HOPE WE ALL DEVELOP AN APPRECIATION FOR THE FACT THAT ULTIMATELY IT IS NOT POSSIBLE TO HEAP THE REVENUE RAISING FOR THIS PLAN ON THE RURAL SOUTH ALONE. IN FACT, THE PRICE WATERHOUSE STUDY SHOWS THAT ALTHOUGH RURAL SOUTHERN STATES BEAR THE LARGEST PROPORTIONAL BURDEN OF A TOBACCO TAX INCREASE, THE GROSS BURDEN FALLS HEAVILY ON STATES LIKE NEW YORK, CALIFORNIA AND ILLINOIS. AFTER NORTH CAROLINA, KENTUCKY AND VIRGINIA, WHICH ARE THE LARGEST TOBACCO-PRODUCING STATES, NEW YORK WILL LOSE THE GREATEST NUMBER OF TOBACCO CORE SECTOR AND SUPPLIER JOBS. AND, NEW YORK RANKS FIRST IN THE PROJECTED NUMBER OF EXPENDITURE-INDUCED JOB LOSSES. EXPENDITURE-INDUCED ECONOMIC EFFECTS ARE THOSE PRODUCED BY SPENDING IN THE ECONOMY OF PEOPLE EMPLOYED IN THE CORE AND SUPPLIER SECTORS. NATURALLY, WHEN PEOPLE IN THE CORE AND SUPPLIER SECTORS OF AN INDUSTRY LOSE.THEIR JOBS OR EXPERIENCE REDUCED INCOME, THERE IS A RIPPLE EFFECT THROUGHOUT THE'ECONOMY. WE ALSO MUST ASK WHETHER OUR STATES CAN AFFORD TO LOSE THE STATE TOBACCO TAX REVENUES THEY WILL LOSE IF THE ADMINISTRATION PROPOSAL BECOMES LAW. LOOKING AT THE STATES I HAVE ALREADY MENTIONED, ONLY A 12% REDUCTION IN TOBACCO CONSUMPTION AS A RESULT OF THE TAX INCREASE WOULD PRODUCE LOST TOBACCO TAX-REVENUES IN VIRGINIA OF $5.6 MILLION, IN NEW YORK OF $88.8 MILLION, IN CALIFORNIA OF $84.6 MILLION, AND IN ILLINOIS OF $51.6 MILLION. I WILL SUBMIT ALL THE FIGURES I HAVE MENTIONED TODAY, ALONG WITH THEIR SOURCES, FOR THE RECORD SO THAT MEMBERS AND THE PUBLIC CAN EXAMINE THEM. I WILL CONCLUDE BY SAYING THAT I THINK THE ADMINISTRATION PLAN FOR FINANCING HEALTH CARE REFORM FAILS TO MEET THE TEST OF FAIRNESS AND ECONOMIC REASONABLENESS. I WILL OPPOSE THE ADMINISTRATION'S PROPOSED HEALTH CARE TAX PLAN, WHILE WORKING WITH THE COMMITTEE TO DEVELOP A PLAN THAT IS FAIR AND ECONOMICALLY REASONABLE TO THE INDIVIDUAL FAMILY FARMER, TO THE TOBACCO GROWING REGIONS OF THE RURAL SOUTH, AND TO THE NATION AS A WHOLE.