Speeches and Testimony

Daniel Clifton's Remarks to the
Georgia Senate Republican Caucus

Statement By Daniel Michael Clifton
Federal Affairs Manager, Americans for Tax Reform
February 5, 2003

I want to thank the Senators for their time today to consider the Americans for Tax Reform's position on taxes and the state budget.

On behalf of the Georgia residents who are members of Americans for Tax Reform I urge the Georgia Senate to reject enacting any law that would raise taxes on working families in the State of Georgia.

Americans for Tax Reform opposes all tax increases. And while several tax increase proposals have been put forward, today I have been asked to speak specifically about tobacco taxes. So before I begin, I want to stress Americans for Tax Reform opposes all tax increases proposed by the Governor and individual legislators.

As the debate begins for the fiscal year 2004 budget, advocates of tobacco tax increases are claiming that increasing cigarette taxes will reduce smoking, which lowers the cost of healthcare AND increases state tax revenue. Furthermore, states have said this money will be used to finance smoking related healthcare. Unfortunately this argument is generally unsound and has been proven to be inconsistent in other states that have recently increased taxes on tobacco.

The first problem is simply flawed mathematics. Recent empirical evidence demonstrates that tax revenue generated from cigarette taxes already exceeds the cost of smoking related healthcare.

Second, advocates are proclaiming that those who will benefit the most from the cigarette taxes are teenagers. But in December 2001, the Canadian Royal Mounted Police testified in the United States Senate between 1984 and 1993, when Canada doubled its tax on cigarettes, smoking of underage youths actually increased as a result of massive black market sales.

Additionally, the theory behind the tax increases is inconsistent. Proponents argue states can have increased revenues AND less smoking. For the state to realize an increase in cigarette tax revenues, sales would have to continue. Yet, out of the other side of their mouth, proponents are claiming less people will be smoking. They cannot have it both ways.

As such, states passing higher cigarette taxes are falling short of their revenue goals. But this is not because smoking has decreased, but rather smokers have found other ways to get their smokes. Black markets for cigarettes and associated smuggling rings, as well as Indian sales are emerging rapidly when taxes are being increased, costing states millions of dollars each year.

Between 1992 and 2000, the average state cigarette-tax rate increased by 64%. However, gross state tobacco-tax revenues only rose by 35%. Although smoking rates probably fell over this period, it was not nearly enough to account for the shortfall in revenue. This suggests that states expecting higher revenues from recently enacted cigarette-tax increases may never see the revenue, which forces lawmakers to further raise taxes to pay for spending they are already committed to.

As mentioned, higher taxes have led to increased smuggling, which has been simplified by use of the Internet. The growth of cigarette smuggling is a key reason why cigarette-tax revenues are not keeping pace with tax increases.

The Bureau of Alcohol, Tobacco and Firearms (ATF) has estimated that $1.5 billion will be lost by state and federal governments this year as a result of illegal evasion of cigarette taxes. By 2005, Internet tobacco sales alone are expected to cost states upward of $1.4 billion in lost revenues.

In sum, state governments are contributing to their own problems. Higher taxes have led to more underground activities. This has contributed to states losing money and not actually gaining revenue. As the illegal activity increases, states are then coerced into enforcing the laws, which have enormous compliance costs. This has actually led to a net decrease in revenue as enforcement costs are exceeding the new revenue being generated.

Thank you and I will take any questions you may have.