Plan to double Va. cigarette tax assailed

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Virginia Republicans and the largest tobacco company in the country Wednesday said Gov. Tim Kaine’s plans to help close the state’s budget shortfall by raising the cigarette tax is ill-timed during a national recession and could harm employment in the state.

“Another huge increase in the cigarette tax would potentially threaten a Virginia industry at a perilous time, while increasing the tax burden on many Virginia citizens and small businesses when they can least afford it,” said Attorney General Bob McDonnell, a Republican running to replace Mr. Kaine next year.

Mr. Kaine, a Democrat, has proposed increasing Virginia’s cigarette tax from 30 cents to 60 cents a pack — along with reducing education spending and ordering additional state employee layoffs — to help close a state budget shortfall now projected to reach roughly $3 billion.

The governor’s amendments to Virginia’s $77 billion biennial budget come amid a national recession and a struggling state economy. The proposals follow other cost-cutting measures announced in October and would dip into the state’s big-budget areas such as public education and health care.

“Just as citizens and businesses have to tighten their belts and live within their means, state governments must do the same,” Mr. Kaine told the General Assembly’s joint money committees. “This is a time for calm resolve to make tough decisions that will position us for a better future.”

The governor said the cigarette-tax increase would generate $148 million in revenue to help support state Medicaid costs and still leave the tax at about half the national average.

“I believe that taxes on smoking should pay for the budget costs incurred because of smoking,” Mr. Kaine said.

But House Speaker William J. Howell, Stafford Republican, said his chamber would amend the budget “without requiring any Virginians to pay more in job-killing taxes during an economic recession.”

House Majority Leader H. Morgan Griffith said Mr. Kaine’s plan to eliminate a “dealer discount” that allows retailers to keep a portion of the sales taxes they collect amounts to another tax increase.

He said the cigarette tax increase also could cause residents to make their purchases elsewhere.

“Now our taxes are going to be substantially higher, so on the border areas … people may decide to buy their cigarettes for the week or the month in another location,” said Mr. Griffith, Salem Republican.

The cigarette proposal also faces opposition from tobacco giant Phillip Morris USA, which has its corporate headquarters in Richmond.

Bill Phelps, a spokesman for Altria Group - the parent company of Phillip Morris - said the governor’s proposal singles out one industry and pointed out the company employs 5,500 Virginia residents.

“The governor’s proposal would increase a tax during an already challenging economy,” he said. “We think such an increase not only would negatively impact adults who smoke, but it would also impact Virginia’s manufacturers, tobacco growers, wholesalers and retailers and the jobs that they provide.”

Mr. Kaine’s cost-cutting proposals for education include using a formula by which the state would pay for one support position for every roughly four instructor slots.

The measure would take effect in fiscal 2010 and save the state $340 million, Mr. Kaine said.

The governor also hopes to eliminate state general fund support for school construction grants to save $27.5 million, shift $55 million in state lottery funding used to pay for school construction to cover instructional costs and increase budget reductions for colleges to 15 percent from the 5 percent to 7 percent reductions announced in October.

In health care, Mr. Kaine said capping Medicaid services, limiting enrollment growth and freezing or reducing provider-reimbursement rates will save the state $418 million. Mr. Kaine said he limited cuts to 7 percent for sheriff deputies and commonwealth’s attorneys’ offices, as well as state and local police departments.

The governor in October called for the layoffs of more than 530 employees to help close the budget shortfall. On Wednesday, he called for an additional 542 layoffs, with 528 coming in the health and human resources field, and noted that the Virginia Department of Transportation is expected to lose about 1,000 positions during the next two years.

Mr. Kaine also eliminated a salary increase for state employees that he previously had hoped to suspend from November until July.

His proposals will be considered when state lawmakers convene for a legislative session Jan. 14 in Richmond.

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