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Senate panel’s cigarette tax approval has rich political overtones

June 20, 1997

WASHINGTON (AP) _ A Senate panel’s lopsided vote to nearly double cigarette taxes injected new intrigue Friday into the debate over the largest tax cut bill Congress has seen this decade.

Senate Majority Leader Trent Lott, who voted for the Finance Committee tax bill, became defensive when asked at a news conference to assess its prospects for passage. And lawmakers from tobacco states promised a fight on an issue the House Ways and Means Committee did not address in its version of legislation aimed at providing a net $85 billion in tax cuts.

``This is not a tobacco press conference,″ Lott said, when asked about the Finance Committee’s 18-2 vote late Thursday for a bill that included the proposed 20-cent-per-pack tax on cigarettes.

``There are a lot of places where we may have some differences,″ said the Mississippi Republican.

The higher tobacco taxes would pay for expanded children’s health coverage and a more modest airline ticket tax than has been envisioned.

The overall bill is part of the deal to balance the budget by 2002. The tobacco tax would raise roughly $15 billion, Senate Finance aides said. About $8 billion of that would expand childrens health coverage and $3.5 billion would be used to reduce the size of proposed airline ticket taxes.

The No. 2 man under Lott in the Senate GOP leadership, Don Nickles, voted against the bill. He said his quarrel was with how the revenue would have been spent.

Nickles said he objected to a proposed extra $8 billion in spending on health care for uninsured children on top of $16 billion the committee previously approved for child health care over five years. ``I didn’t want to increase taxes and increase spending,″ the Oklahoma Republican said.

Nickles said he actually was prepared to offer a cigarette tax hike of his own _ an amendment that would have expanded the $500 child tax credit to more families. Sen. Phil Gramm, R-Texas, also voted ``no″.

Senators from tobacco-growing states on Friday assailed the tax as discriminatory.

``Washington politicians love to kick someone when they’re down but tobacco already pays its fair share and taxing farmers out of existence won’t balance the budget,″ said Sen. Lauch faircloth, R-N.C.

Sen. Wendell Ford, D-Ky.: , described the tax as ``just another assault on low to moderate income citizens.″

For its part, the White House was cautious.

``The president strongly believes that any revenue raised from tobacco should go to help children and not to benefit corporate or other special interests,″ said Gene Sperling, National Economic Council director, a key White House economic adviser.

The White House had played a major role in defeating a broader cigarette tax hike proposed by Sens. Edward Kennedy, D-Mass., and Orrin Hatch, R-Utah, on the Senate floor last month _ but not because it was against the idea. It said at the time that the Kennedy-Hatch tax hike would have exceeded the guidelines of the budget deal.

Away from Pennsylvania Avenue, the cigarette tax vote _ albeit only in committee _ was seen as an historic development.

``It was certainly telling that members of all ideological stripes were willing to attach a hefty tax increase on cigarettes,″ said Thomas Mann of the liberal oriented Brookings Institution, a Washington thinktank.

``They would rather go easy on airlines and a little tougher on tobacco, perhaps anticipating the (tobacco lawsuit) settlement that was to come ...,″ he said.

C. Clinton Stretch, a tax expert with Deliotte & Touche, a major accounting firm, said, ``Normally, the Republican leadership has gone to great lengths to protect tobacco state Republicans. I assume the tobacco tax will cause some real consternation on the (Senate) floor.″

The $8 billion for childrens health, in addition to $16 billion previously passed by the Senate panel, would enable the government to provide coverage for about two-thirds of the estimated 10 million children in the country now lacking health care, Senate aides said.

The Senate bill _ roughly similar to the House committee version passed last week _ includes a $500-per-child tax credit for children under age 17, some $32 billion in education tax incentives, expanded retirement savings accounts and reductions in the capital gains tax from 28 percent to 20 percent for middle and upper income taxpayers.

Also, individuals and small businesses would get a combined $2 million in estate tax relief by 2006, under the Senate bill, up from the current exemption of $600,000.

Another key difference in the Senate bill concerned tax credits for the working poor. The White House wanted to allow poor families to take both the proposed $500 child tax credit as well as the existing Earned Income Tax Credit, designed to benefit the poor. Republicans disagreed, saying that would amount to a hidden increase in welfare spending.

The Senate bill includes a compromise, allowing working poor families to get a portion of the earned income credit along with the $500 child tax credit.

``For so long, the debate in this city has been more spending, more taxes, more government,″ said Senate Finance Committee Chairman William V. Roth Jr., R-Del. ``This is a monumental change in consensus, in the debate in this city.″

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