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'Paying the Piper'

April 12, 1987

Your editorial (March 27), "Paying the Piper," endorsing higher cigarette excise taxes as a way to decrease the deficit, gave your readers the mistaken notion that smokers are somehow avoiding their fair share of taxes. Nothing would be further from the truth.

Contrary to your claim, the excise tax burden on cigarettes is one-third of the retail price, not 15%. In the last three decades, excise taxes imposed by states and localities have increased nearly tenfold. In addition, the local and state sales taxes are also applied in nearly all jurisdictions resulting in a tax on a tax.

Despite the $10 billion in tax revenue raised at the federal, state and local level by cigarettes last year, the General Accounting Office found in its 1986 study that "the cigarette excise tax does not have a consumer base broad enough to materially reduce the deficit."

The effects of doubling the present federal cigarette excise tax, as you propose, would be startling. This year's Congressional Budget Office study called such a tax hike "the most regressive of all the tax increases considered." As a percentage of income, the tobacco excise is 15 times higher for low-income (less than $5,000) families than for high income (over $50,000) families.

By one estimate, doubling the cigarette tax at the federal level would result in a loss of 28,500 jobs in the U.S. economy. California ranks fourth nationally in the number of jobs supplied by the tobacco industry. It would be expected that the California economy would suffer proportionately should your proposal become law.



Merryman is vice president of the Tobacco Institute.

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