Budget deficit could afford Hoosier cigarette tax increase

INDIANAPOLIS -- The Republican leader of the state Senate said Wednesday that an increase in cigarette taxes is an option lawmakers could turn to this session in trying to erase the state's deficit and pass a balanced budget.\n"I am certainly open to consideration of an increase in the cigarette tax," Senate President Pro Tem Robert Garton of Columbus said during a weekly meeting with reporters. When asked about the possible range of an increase, he suggested 25 cents to 40 cents per pack.\n"I merely mention it. There will be opposition to it. I mention it. I don't want the public surprised if it surfaces at some point," Garton said.\nGarton said he had not discussed the idea with Republican Gov. Mitch Daniels, and Senate Appropriations Chairman Robert Meeks, R-LaGrange, said he was opposed to it because it would hurt many retailers in his district in far northeastern Indiana who sell cigarettes.\nLawmakers raised cigarette taxes from 15.5 cents per pack to 55.5 cents per pack in 2002 to help prop up state spending. It brought in $338.7 million in the last fiscal year that ended June 30.\nEach penny of the cigarette tax raises about $6.1 million per year. That means a 25-cent increase could bring in about $153 million in new revenue, and a 40-cent increase could raise $244 million. But that assumes that cigarette sales would remain steady, and Garton acknowledged that a tax increase could hurt sales.\nDaniels has proposed raising the individual income tax by 1 percentage point for one year on people making more than $100,000 as a way to help erase the state's projected $645 million budget deficit.\nGarton said that proposal also remains an option, even though House Republicans did not include it or any other state tax increases in the budget their fiscal leaders have drafted and could present for passage next week. Once the House passes a budget bill, it will move to the Senate for consideration.\nMeeks said he shared Daniels' goal of eliminating the deficit and passing a balanced budget, but said new revenue sources may be needed to do that and provide adequate funding for government services.\nHe said one idea was applying the state sales tax to some services. Garton said that was not a viable option this session, but should be considered in the future because of today's service-driven economy.\n"What I'm doing is just throwing out ideas that we've all looked at, not saying that we're going to take this one or going to take that one," Meeks said. "But I've been trying to find money everywhere."\nAlthough Republicans control both houses of the General Assembly, no final agreement on a budget plan would be likely until April.\nIndiana's cigarette tax of 55.5 cents per pack is 32nd highest among the 50 states and District of Columbia, according to the National Conference of State Legislatures.\nDaniels has not proposed a cigarette tax increase, but governors in three of Indiana's four surrounding states have this year.\nThose proposals would raise Ohio's tax by 45 cents to $1 per pack, and Illinois' tax by 75 cents to $1.73. A proposal by Kentucky Gov. Ernie Fletcher would raise that state's 3-cent tax to 34 cents, with higher levels in future years tied to the tax rates in surrounding states.\nMichigan raised its tax by 75 cents last year to $2 per pack.