Tobacco Documents Online

Statement of Fred Bond, Vice President Tobacco Growers' Information Committee, Inc. Before the US House Ways & Means Committee On the Administration's Health Security Act November 18, 1993 Thank you, Mr. Chairman, for the opportunity to appear before this Committee and discuss "the effect of the tax increase proposed by the Administration on the production of tobacco." My name is Fred Bond. I am testifying on behalf of the Tobacco Growers' Information Committee, an organization representing hundreds of thousands of tobacco farmers and family members in 22 states across the country where tobacco is produced. President Clinton proposes a drastic increase in tobacco taxes to pay for U.S. health care reform. The majority of tobacco growers believe that all Americans should have equal access to adequate health care. Tobacco growers accept that as wage-earners, property owners and consumers, a portion of what they earn, own or buy will be taxed. In fact, many tobacco growers are willing to pay their fair share for a better health care system. However, tobacco growers are not willing to shoulder a far greater tax burden or to sacrifice their livelihood and their dignity to pay for a government program intended for all Americans. They expect taxes to be fair - and not to single out certain Americans to contribute more than their share. Tobacco is one of the Southeast's leading industries. Various facets of the U.S. tobacco sector, which includes tobacco'growing, manufacturing and sales, employ nearly 325,000 people from this region of the country. All of these folks have something in common -- they all stand to lose significantly from tax-increase proposals being debated here in Washington. Tobacco contributes significantly to the nation's economy - in both jobs and revenues. In 1990, approximately 2.2 million workers derived income from the tobacco industry. These workers earned over $66 billion. In that same year, the tobacco industry contributed to the federal government over $21.9 billion in non-sales-related taxes: $11.4 billion in personal income taxes, $2.6 billion in corporate taxes, and $7.9 billion in FICA. The industry also coutributed to the states $2.8 billion in personal income taxes and $855.5 million in corporate taxes. Consider the tobacco tax contribution from a different perspective. Tobacco often is referred to as a "cash crop." In dollars and cents, each acre of tobacco alone yields more than $30,000 in revenue for the federal government. That figure climbs to around $70,000 per acre when state and local revenues are factored in. How dire would the consequences of a tobacco excise tax increase be? It is estimated that a 75-cent increase in the tobacco tax would wipe out more than 273,000 tobacco- related jobs across the country. About 100,000 of these tobacco sector jobs would be from Southern states alone. The tobacco tax increase also would eliminate $8 billion in individuals' salaries upon which the economy depends for strength and recovery. State governments would suffer revenue shortfalls as tax collections fall with the projected decline in jobs and retail sales. How will the states to make up the $1.55 billion difference? This is unacceptable. We must devise a method to fund health care reform without calling on specific geographic regions to make unfair sacrifices.

i There are some interests who suggest implementing crop "diversification" programs to help tobacco farmers make the shift to another crop. Some specifically suggest that a portion of the federal tobacco tax should be earmarked to underwrite a transition. A check from the government to the farmer is not going to salvage the local car dealership, local churches and schools, restaurants, farm equipment stores and all the other elements of communities. Tobacco farmers are already well diversified. Most tobacco is grown on farms where the bulk of the acreage is devoted to other crops such as soybeans and corn, or to other uses such as raising cattle or bogs. Yet, without tobacco, a farm family cannot pay their bills. Nearly 80 percent of all flue-cured tobacco farms derived half of their gross farm income from tobacco. And about 65 percent of all burley tobacco farms obtained more than 50 percent of their gross farm income from tobacco. Tobacco areas have achieved maximum diversification. Further diversification to crops considered exotic for tobacco producing areas would not support existing farm families; growers in other parts of the United States would not appreciate subsidies to help former tobacco farmers compete with them. I would like to address other matters pertaining to the impact of tobacco tax increases on tobacco growers. The 1993 flue-cured tobacco quota was set at 891 million pounds in December 1992. At that time, there was a strong market demand for approximately 815 mil. lbs. of flue-cured tobacco. Uncertainty created by cigarette excise tax increases by as much as $2.00 per pack caused demand for flue-cured tobacco to drop by as much as 125 mil. lbs., or a 14 percent drop in manufacturer and dealer purchases. The additional 125 mil. lbs. placed under loan in the flue-cured tobacco grower owner marketing cooperative resulted in depressed returns to growers and a guarantee of the future increased marketing assessments. Tobacco grower owned marketing cooperatives are mandated by federal law at no net cost to the taxpayer. Losses in the sale of loan stocks are made up by the grower and purchaser in the form of marketing assessments. The threat of a cigarette excise tax increase has cost growers millions of dollars this year in personal income and, because of large inventories, will cost the growers millions of dollars in personal income in the future. U.S. Department of Agriculture analysts have recently given an unofficial projection of the 1995 National Flue-Cured Marketing Quota. Official projections can only be made using existing laws that might impact tobacco. However, these projections took into account a 75-cent-per-pack cigarette tax increase. These projections, with the 75-cent increase, decrease the flue-cured quota to a catastrophic 50 percent from current levels by 1995 - or a 445 mil. lb. decline. In conclusion, Mr. Chairman, we believe that a solution to the nation's health care challenge should be constructed on a solid foundation. All members of society who can, should pay their fair share. Financing progressive government through regressive means forces a few Americans to shoulder the tax burden of the entire society. Singling out one product, in this case tobacco, to pay more is unfair and unwise policy. The tobacco tax punishes, in an economic sense, the very people the Administration and many in Congress claim they want most desperately to help - working Americans and their families who play by the rules. Tobacco tax increases are bad tax policy. Raising tobacco taxes will only create new fiscal problems for hundreds of thousands of hard working Americans, and for state and local governments across the country. Tobacco growers from across the United States do support health care reform. But we will = stand by and watch our livelihoods be destroyed by this drastic tax increase.

Just a few weeks ago, Mr. Chairman, you said during an interview on CNN that you didn't think the purpose of the legislation was to "put people out of business [by] taxing them so heavily." While it may not be the intent of this legislation, it surely will be the outcome. Thank you.