Tobacco Documents Online

Testimony to be presented at the Hearing of the U.S. House of Representatives Committee on Ways and Means By Scotty Baesler Member of Congress Sixth District, Kentucky November 18, 1993 Mr. Chairman, and Members of the House Ways and Means Committee, I bring you greetings on behalf of the burley tobacco farmers of Kentucky. Thank you for the opportunity to appear before you today to discuss the impact of the proposed increase in the federal excise tax on tobacco products. In the interest of full disclosure, the Committee should know that I am a tobacco farmer. My wife, Alice, runs the family farm in Kentucky. As you know, there are only a handful of farmers left in the United States House of Representatives. But I want to speak to you today as the Congressman representing the largest burley tobacco market in the world. According to the USDA's handbook of congressional district ranking by selected programs and commodities, the Sixth Congressional District of Kentucky is ranked number one in the nation in the production of burley tobacco leaf. We are also ranked first in the number of farmers who hold effective quotas for burley tobacco. In addition, we are ranked also first in the number of pounds raised. Price Waterhouse estimates that 61,648 residents of Kentucky have jobs in sectors linked to the production, distribution and retailing of tobacco products. Kentucky is the nation's second-ranked state in terms of total tobacco production. • However, Kentucky ranks first among the states that are heavily dependent on tobacco. Tobacco constitutes 57.2 percent of the crop cash receipts generated in the state's economy. Tobacco creates and sustains one in 16 jobs in Kentucky. In the Sixth Congressional District, one in five households earns some family income either by raising burley tobacco or by leasing their quotas to active tobacco growers. Price Waterhouse estimates that the Clinton Administration's proposal to raise the current federal levy of 24 cents per pack by 75 cents, to 99 cents per pack would lead to a loss of 9,107 jobs in the state of Kentucky. Agricultural economists at the University of Kentucky estimate that an increase in the levy by 75 cents will "initially reduce Kentucky's burley demand by 30 to 50 million pounds." This will constitute a loss of 50 to 90 million dollars to farmers in the state of Kentucky. Simply put, Mr. Chairman, raising the tax to the proposed level is tantamount to killing the proverbial "goose that lays the golden egg." The crux of my argument against the increase in the tax is an economic one. It is also an argument of fairness and fair play and a matter of political courage versus political correctness. It is an argument, if you will, of geographical correctness: we must determine whether it is fair that a handful of southern states should bear the price tag of health care reform? I raise this last point because research shows that nearly 40,000 jobs will be lost in the South as a result of the proposed hike in the excise tax. In fact, research shows that "as a percentage of state population, the jobs lost in the tobacco sector of the South would be 3.5 times greater than i_n the rest of the United States." Indeed, the research also clearly indicates that the increase in the excise tax would have a rippling impact on workers in the six major tobacco producing states of Georgia, Kentucky, North Carolina, South Carolina, Tennessee and Virginia. It is estimated that 33,500 hard working men and women will be thrown out of their jobs in these six states alone.

x i. This unfair tax will also have an impact on the bottom lines for state and local governments. In fact, a study conducted by the National Council of State Legislatures shows that excise tax revenues collected by state and local governments could shrink by as much as $ 1.1 Billion. This would amount to a decrease of 20% in the excise tax raised by local and state governments. The upshot could lead to "Severe cutbacks to essential government services." Last week, I received a letter from a non-profit association composed of public officials representing the Commissioners, Secretaries, and Directors of Agriculture in all fifty states and four territories that caught my attention. That organization is the National Association of State Departments of Agriculture. One paragraph in their letter stood out, and it read: "NASDA's members realize that a higher federal tax on cigarettes and other tobacco products is politically appealing because it has relatively strong support from the public." The letter continued: "While the need for a reform in the health care delivery system is not disputed, to place the majority of the cost on the tobacco economy would result in devastation of the agricultural economy in many states. People not familiar with farming suggest that tobacco farmers should simply switch to another crop, but that would be impossible for thousands of them. Many would simply lose their farms." In addition, the burden of this tax increase would also fall disproportionately upon the backs of rural Americans. The American Agriculture Movement has analyzed the impact of excise taxes on rural taxpayers. Their study shows that "Rural Americans pay a significantly higher percentage of.their income in consumer excise taxes than do residents in urban areas." The study also shows that "rural Americans shoulder a 44 percent higher tax burden in tobacco excises alone." The proposal to increase the excise tax on tobacco comes at a time when tobacco faces an already uncertain future. The tax proposal comes at a time when U.S. tobacco production in crop year 1993-1994 is forecast down about 11 percent because of smaller acreage and yields. On top of this, the flue cured markets in North Carolina and other states have already experienced weak demand, as larger quantities of tobacco continue to move into the pool system. The burley market opens next week and there is real fear that because of excess supplies, flue-cured and burley marketing quotas are both likely to decline 10 percent in 1994. Despite the recent passage of domestic content legislation, tobacco farmers still find themselves in the cross fire from their foreign counterparts who are supplying increasing quantities of tobacco leaf in markets across the world. Many manufacturers have already begun shifting away from using American grown burley and are using foreign grown burley. The proposed increase in the excise tax on cigarettes represents more than a 300 percent increase in the tax. Equally as disturbing is the fact that the Clinton Administration_has also announced it will seek an increase in the tax on tobacco products such as cigars, cigarette papers, cigarette tubes, smokeless tobacco, pipe tobacco, and roll-your-own tobacco. I am of the opinion that it is unfair to single out tobacco as one of the major sources for funding health care reform. Needless to say, the proposed sizable increase in federal excise taxes would have a devastating impact on tobacco farmers in Kentucky. I have growing concerns about any proposal that would, in my view, undermine the economic foundation of the farm community in Kentucky and five other southern states. -2-

S It is an economic fact of life that tobacco growing remains one of the last bastions of family life in Kentucky. In our state, the quota holders are often older people who depend on renting the quota for income. Due to the quota system and other factors, the producers are usually small family operations, not large business entities. The local economy in many areas of Kentucky has grown around and is dependent on this small operator system. Having said that, I must also say that I strongly believe our health care system needs to be improved. Kentuckians deserve, and need access to affordable, quality health care, and we must work together to achieve that goal. And while I am not convinced that all excise tax increases can be avoided, I want to make certain that the costs and the benefits of health care reform are equitably shared. The current plan does not take this factor of equity into account. Tobacco is already heavily taxed. One acre of tobacco yields nearly $29,000 in federal and state excise taxes and in sales taxes. But the farmer has become the forgotten man or woman in our efforts to spark economic recovery. The farmer only gets six cents from each pack of cigarettes sold in this country. But because he is at the other end of the economic food chain, the farmer will suffer the most in the effort to increase the excise tax on tobacco products. I do not quibble with reports of enormous health risks and costs associated with the use of tobacco in the country. The fact of the matter is the total economic costs of smoking is estimated to be $75 billion annually. Health promotion efforts and stop smoking campaigns have had a tremendous impact on smoking and issues such as smoking in the workplace. For example, earlier this week the House voted to approve a ban on smoking in all federal buildings and in any other space owned or leased for use by a federal agency. Efforts such as these across'the course of three decades have been working. The prevalence of.smoking among adults has decreased steadily since the mid sixties. In fact, smoking has declined by about 0.5 percent each year, from 40 percent in 1965 to 29 percent in 1987. But let us be intellectually honest about this. Smoking poses health risks. But this is also.true of a host of other products that are available in the marketplace. I think some people have opted to use political correctness as a policy tool in deciding to tax cigarettes and other tobacco products. But why have we not opted to tax products such as distilled spirits, wine, and beer? Do they not contribute to our health care crisis? To argue that tobacco alone should bear the burden of underwriting the cost of health care reform is to miss the obvious about the price tag that our society has paid and is paying for alcohol use and abuse. It is the height of arrogance and hypocrisy to fault and target tobacco and ignore the truth about alcohol abuse. in the November 14th edition of the Washington Post Joseph A. Califano, former Secretary of Health, Education and Welfare under President Jimmy Carter argued that "Drugs and alcohol are implicated in at least three-fourths of the nation's homicides, suicides, assaults, rapes and child molestations...Add to that the muggings and robberies by drug-crazed perpetrators and date rape by high school and college students high on beer, pot or cocaine, and it's easy to understand why our nation is drowning in a crime wave." Mr. Califano also argues rather forcefully that "Eighty percent of state and local prisoners are incarcerated for drug- or alcohol- related crimes." And he adds, "Most of the homeless who make our city sidewalks smack of Calcutta are victims of alcohol and drug abuse." -3-

He also cited this chilling fact from a recent study by the Medical College of Wisconsin that "more elderly medicare patients are hospitalized for alcohol abuse than for heart attacks." But Mr. Chairman, where is the moral and political outrage? Where is the hue and cry for an increased tax on alcohol products? Why haven't the health and medical costs associated with alcohol use, misuse, and abuse become a political hot button? Earlier I mentioned the economic costs of smoking. But the price tag for alcohol abuse is even higher than it is for smoking. According to a recent report by the Congressional Research Service, the total economic costs for alcohol abuse was $99 billion in 1990 alone. A health care fact sheet prepared by the CRS reveals "Alcohol abuse and dependence affect about 10 percent of American adults." A study by the National Institute on Alcohol Abuse and Alcoholism indicates that "At least three out of 100 deaths in the U.S. can be attributed to alcohol, which is used by more Americans than any other drug including tobacco." A CRS study shows that in 1985, "Almost 95,000 deaths occurred due to alcoholism." I cite this figure because the CRS analysis shows that this represented a loss of 2.7 million man years. Said another way, this represented a loss of 28.2 years per death and a loss of $24 billion to the economy. Recent data shows that each year nearly 107,800 deaths are directly attributable to alcohol. Previously, I quoted Mr. Califano's analysis of the costs of drug and alcohol use and abuse. But let us, for the sake of argument, look at the cost of alcohol abuse in isolation. Alcohol is a contributing factor in almost half of all homicides, suicides, motor vehicle fatalities and numerous deaths from liver disease. Alcohol abuse is a major factor in motor vehicle accidents. According to the National Highway Traffic Safety Administration, 40 percent of all traffic fatalities involves a drunk driver. Each year 534,000 people suffer injuries in nonfatal alcohol-related crashes. The Congressional Research Service has done an insightful report on the estimated economic costs of alcohol abuse. The CRS observed that "In the case of alcohol abuse, other related costs include the direct costs of crime, motor vehicle accidents, and social welfare programs administrative costs, and the indirect costs of productivity losses for victims of crime, incarceration, and the value of time spent caring for ill family members." "Estimates published by the Alcohol Drug Abuse and Mental Health Administration of the Department of Health and Human Services found that alcohol abuse posed an estimated $85.8 billion cost to the U.S. in 1988. Approximately 9.3 percent of that--$8 billion-- arose from treatment costs. Approximately 38.5 percent--$33 billion- -was derived from morbidity, or lost productivity." We hear, for example, a great deal of rhetoric about the impact of second hand tobacco smoke, but where is the outrage and concern about prenatal alcohol exposure? It is one of the leading known causes of mental retardation in our country. The U.S. Department of Health and Human Services estimated that in 1988, "fetal alcohol syndrome (FAS) cost the•nation over 1.8 billion." Treatment costs alone for the birth defects in children born to alcoholic mothers were estimated to be $333 million during the last year that such numbers were available. Mr. Chairman, the excise tax increase on tobacco products alone is unfair, unprincipled, and regressive. it sends the wrong message to young people. In effect, we are telling them that the health -4- t.+

t risks are less when you use beer, wine and distilled spirits. All of us are painfully aware of recent stories concerning teen beer parties in nearby Montgomery County. Let us not single out Montgomery County, this is a national problem. A problem that we have chosen to ignore or wish away in our efforts to fund health care reform. Some have tried to justify the proposed increase in the excise tax on tobacco products by pointing to the number of young people who use tobacco. I am concerned about this too, but let us be consistent and intellectually honest about this matter. The Congressional Budget Office has found that beer may in some respects exact higher costs to our society than wine or distilled spirits because "it is the alcoholic beverage of choice among teenagers and young adults, who are responsible for a disproportionate share of traffic fatalities." The CBO study shows, "In 1987 licensed drivers age 16 to 19-- 6.2 percent of all licensed drivers--accounted for 12.7 percent of drivers involved in fatal traffic accidents and 9.6 percent of legally intoxicate drivers involved in fatal traffic accidents. Licensed drivers age 20 to 24--10.9 percent of all licensed drivers- -accounted for 17.8 percent of drivers in fatal traffic accidents and 23.5 percent of legally intoxicated drivers involved in fatal traffic accidents." Indeed, despite an overall decline in per capita consumption of alcohol in the 1980s, a study by the CRS shows that the "proportion of heavy drinkers in their twenties increased slightly during the same period. The CRS grimly reminds us that "Although alcohol consumption by people under 21 years of age is illegal, 42 percent of underaged college students said they engaged in bouts of heavy drinking." This, then, is the crux of my arguments against a tax on tobacco products of this magnitude. Not only is the proposal fueled by political expediency the tax proposal makes no accounting for the harm to our economy and economic well-being of a handful of southern states. It will mean the loss of much needed state and local revenues. Yes, farmers will lose their farms. Yes, hard working men and women will lose their jobs. I only ask for fairness and honesty in our health care reform debate. The cost of health care reform should be borne by other interests that contribute to our runaway health care costs, and not by tobacco alone. Our debate on health care reform should be governed by intellectual honesty and not by political correctness or political expediency. -5-