With his quarter-a-pack tax on cigarettes the victim of election year jitters, Gov. William Donald Schaefer yesterday agreed to replace it with a plan that would raise Maryland's cigarette tax every time Congress raised the federal cigarette tax.
Under the proposal, Maryland's tax would automatically rise by an amount equal to 30 percent of any new federal cigarette tax increase. If Congress raised the federal tax by $1 a pack, for example, the state tax would increase by 30 cents.
In payment for their support, Mr. Schaefer agreed to send legislators a supplemental budget today that is expected to include about $20 million for schools and other programs. Legislators hope to tout those programs -- financed through other budget cuts -- when they hit the campaign trail this summer.
Del. W. Ray Huff crystallized the political benefits of the deal for his colleagues. "We didn't vote for cigarette taxes this year, but we got school construction money," the Anne Arundel Democrat said.
In the view of some lawmakers, that statement is technically true because the tax won't take effect unless Congress acts.
It is impossible to predict when the federal cigarette tax might go up next, although there appears to be broad consensus in Congress for a substantial increase to pay for national health care reform. One plan under consideration would increase the federal tax from 24 cents to $1.49 a pack next year.
If that were to occur, Maryland's 36-cents-a-pack tax would increase by 37.5 cents -- far more than the governor proposed.
"His goal from the beginning was to figure out a way to discourage people from smoking, to make cigarettes prohibitively expensive so young people won't be able to smoke," said Page W. Boinest, the governor's press secretary. "The benefit of the indexing legislation is that, assuming a federal tax increase is approved, it would have the effect of discouraging smoking."
The governor's original 25-cent proposal would have raised $70 million. Ms. Boinest said that the amount raised under the indexing proposal was immaterial to Mr. Schaefer.
"The money means nothing to him, and will mean nothing to him, because, as a practical matter, he won't be here to enjoy that kind of windfall. But it is his last opportunity to do the one thing he set out to do: to discourage smoking and save people's lives," she said.
Dennis C. McCoy, a lobbyist for Philip Morris Inc., the manufacturer of Marlboro and other cigarettes, said Maryland would be the first state in the nation to adopt a cigarette tax tied to federal taxes.
'Very much a tax'
He also disputed Mr. Huff's notion that the tax is not a tax because it is tied to future actions by Congress. "This tax is very much a tax, and we very much oppose it."
The new approach, which was created with less than two weeks remaining in this year's session, was unveiled before the House Ways and Means Committee by Speaker Casper R. Taylor Jr., D-Allegany, who brokered the deal.
Less than three hours later, the committee passed the bill 12-7 after beating back attempts to lower the percentage to 20 or 25.
Mr. Taylor told the delegates that he, the governor and Senate President Thomas V. Mike Miller Jr. all supported the compromise.
But Mr. Miller, reached by telephone later, said his support was qualified. He said he had not discussed the matter with other senators and was worried about abdicating to Congress the state's authority to raise taxes.
"I don't want to give the federal government a free hand at raising taxes that affect Maryland," the Prince George's Democrat said.
The Senate president said the legislature needs to discuss whether such a proposal should contain a ceiling on Maryland's tax rise if the federal tax goes up, and the extent to which Maryland officials should retain the oversight role they were elected to perform.
"There are a lot of questions that surround this proposal," he said. "We're a long way from home."
One influential senator, Republican leader John A. Cade, said, "We don't need a tax. . . . And if we need a tax we should decide what it should be. We certainly shouldn't tie it to something Congress might or might not ever do."
No windfall promised
Even if Congress significantly raised its tax, say by 50 cents a pack or more, Maryland would not necessarily reap a windfall, said William S. Ratchford II, the legislature's chief budget adviser.
If many smokers respond to a large federal tax by kicking the habit, Maryland revenue might not go up despite a higher state tax.
The governor and other tax supporters are not fretting about that, because public health would ultimately improve. "It's a strong anti-smoking message, especially to kids," said Mr. Taylor, who is a smoker.
Whatever money the state makes from the tax could be used to offset budget shortfalls expected in the next few years.