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Gov. Dayton fights to rescind GOP tax cuts on tobacco

Revenues could be reduced by $300 million over 10 years

Marshall Helmberger
Posted 6/14/17

REGIONAL— Gov. Mark Dayton is pointing to a new study by the Minnesota Department of Health that he believes bolsters his campaign to convince Republicans to rescind their recent tax cut on tobacco …

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Gov. Dayton fights to rescind GOP tax cuts on tobacco

Revenues could be reduced by $300 million over 10 years

Posted

REGIONAL— Gov. Mark Dayton is pointing to a new study by the Minnesota Department of Health that he believes bolsters his campaign to convince Republicans to rescind their recent tax cut on tobacco products, including cigarettes and premium cigars.

The issue is at the heart of the ongoing dispute between the governor and Republican leaders in the House and Senate over Dayton’s decision to line-item veto funding for the Legislature, effective July 1.

Republican leaders filed a lawsuit earlier this week asking the state Supreme Court to rule Dayton’s decision unconstitutional.

While Dayton has issues with several provisions in bills he signed this session, he has sought to make his case with the public primarily over the issue of the tobacco tax cuts, which are expected to reduce state revenues by about $300 million over ten years, but also increase the rates of smoking in the state. Public health officials believe higher rates of smoking will also increase medical costs in the state, including medical bills paid by tax dollars.

GOP leaders included the tax cuts in their 2017 tax bill, which the governor claims he signed under duress.

Republicans had included a provision in the Government Operations bill that would have zeroed out funding for the Department of Revenue had Dayton vetoed the tax bill. Rather than risk putting 1,300 state workers on the unemployment line, Dayton signed the tax bill, but turned the tables on Republicans, vetoing operating funds for the Legislature, which the GOP controls. Dayton said he hoped the move would prompt Republican leaders to renegotiate portions of the tax bill, particularly the tax cuts for tobacco products.

A DFL-dominated Legislature and Dayton approved higher tobacco taxes in 2013, which raised the cost of a typical pack of cigarettes by $1.60 and established an automatic inflation escalator for the tax. Since then, according to a 2017 study published last month, the rate of tobacco use by high school age children has fallen significantly. Among high school juniors who were surveyed for the study, smoking rates dropped by a third.

The study also found that the higher price of cigarettes was a significant factor in declining rates of smoking among adults. Indeed, nearly two-thirds of Minnesotans who quit smoking in 2016 cited the high, increased cost as a factor in their decision.

“This new study makes clear that making cigarettes less easily accessible to children and adults means fewer Minnesotans start smoking, and are more likely to quit,” said Governor Dayton. “It is reprehensible that Minnesota Republicans have prioritized more than $300 million in tax breaks to big tobacco in the next decade, over the fiscal integrity of the state and the best interests of Minnesotans. I urge Republicans to return to the table to correct their grave errors, for the future of our state.”

While the 2013 tax hike didn’t eliminate smoking, six-in-ten Minnesota smokers said it got them to consider quitting the habit, and just under half said it prompted them to reduce how much they smoke. Four-in-ten said it prompted them to attempt to quit smoking.

Smokers of lower socioeconomic status are disproportionately impacted by the health effects of tobacco, and the higher taxes provided extra incentive for those Minnesotans to quit. The MDH-led study found these Minnesotans were nearly twice as likely to take steps to reduce their tobacco use, as compared to other smokers.

“The 2013 tobacco tax increase has prevented smoking and motivated quitting in Minnesota,” said Molly Moilanen, Director of Public Affairs at ClearWay Minnesota and Co-Chair of Minnesotans for a Smoke-Free Generation. “That’s why I call on leaders of both parties. Come back to remove these tax breaks, which benefit an industry that creates death and disease, and drives up costs for everyone. Use tobacco prices and cessation options as tools to reduce smoking. It’s common sense.”

Critics of the tax argue it’s harmed tobacco retailers in border towns and has increased cigarette smuggling.

Rep. Greg Davids, R-Preston, the chair of the House tax committee, worked to repeal the annual cigarette tax adjustment, which he decries as bad policy.

“We have one of the highest cigarette taxes in the country, and I just think that the groups should have to come back and justify if they want to raise it. We’re not lowering the cigarette tax one penny,” Davids said.

Davids contends that Dayton agreed to every provision in the tax bill before the Legislature passed it. He says it’s unfortunate that the governor now wants to backtrack on the tobacco items, as well as adjustments related to estate taxes and business property taxes.

“He’s having some real problems, it seems like,” Davids said. “He signed the tax bill. There are some things you like, there are some thing you don’t like. That’s how a tax bill works.”

Sen. Roger Chamberlain, R-Lino Lakes, who chairs the Senate tax committee, says the tobacco tax breaks were never a priority for the Senate. But he said that later changed when leaders got involved in negotiations.

“Occasionally, as it is with any piece of legislation, any bill, sometimes you have to take something that somebody tells you to take,” Chamberlain said. “So, we were instructed to include the tobacco provisions, and that’s what we did.”

Minnesota Public Radio News contributed reporting for this story.