Presidential Commission Mulls New Cigarette Tax

A presidential commission on tobacco wants to boost cigarette taxes by 17 cents a pack — a 50-percent increase — to pay farmers to stop growing tobacco.

The commission, created last September by President Clinton and made up of tobacco growers, anti-smoking advocates and economic development experts, released a report Monday that said the sale of 20.2 billion packs of cigarettes per year would raise $3.4 billion annually in additional taxes, more than $16 billion over five years. Over the next ten years, the money would be used to help farmers who want to opt out of the government's quota system and to pay for community health programs.

The recommendation come as the tobacco industry, already under assault, continues to complain about being over-taxed. Last year, cigarette companies were hit with a 10-cent per pack hike and cigarette taxes are supposed to increase another five cents next year.

The commission said the tax would be used for a Tobacco Equity Reduction Program (TERP) that would replace the current quota system with a buyout option. Currently, the government uses quotas to determine how much money farmers should be paid for the tobacco they would have grown but are not. Many farmers lease their quotas to other farmers and use that as their primary source of income. 

Replacing the quota system with a production permit system would reduce the marketing of quotas and leave tobacco production to active growers, the commission said. 

"By eliminating quotas which are tied to the land, we eliminate an artificial cost that has made tobacco farming economically difficult for many small farmers," the commission's report said.

There are more than 81,000 tobacco farms in the United States and 415,000 quota owners.  The report said that the money raised from the tax would give $5,400 per year for five years to quota owners and $10,400 per year per tobacco farm.

"The funds would compensate quota owners and growers for the loss in value of their quota and related assets," the report said.

But Rep. Ernie Fletcher, R-Ky., a member of the House Agriculture Committee, said he sees two major problems with the recommendations

"It is highly unlikely that a bill which substantially increases taxes will be voted through the House of Representatives. I have concerns that if it did pass, the excise tax would not make it directly to the farmers where it is needed most," Fletcher said in a statement.

Josh Holly, a spokesman for Fletcher, said that Fletcher is already "very skeptical of any tax increase" and wants to speak with his constituent farmers to "see what best benefits them" before considering the upheaval of the current tobacco program. Kentucky is one of the top tobacco producing states in the nation.

One commission member said that not everyone is going to like a tax increase, but unlike other tobacco taxes, this one is needed and is designed to help farmers.

"We simply don't have the quota that is needed to support the number of people in the tobacco industry today," said James T. Hill Jr., a flue-cured tobacco grower.

In all, the commission recommended three measures to get farmers to stop producing tobacco — TERP, which would operate for the first five years; a Center for Tobacco Dependent Communities, which would create economic and business development programs in the 568 counties where tobacco is grown; and comprehensive tobacco prevention and cessation programs that would begin in five years and be administered by the Centers for Disease Control and Prevention. All the programs would be paid for with the tax.

Fox News' Collins Spencer and The Associated Press contributed to this report

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Sharon Kehnemui is a digital marketing consultant and founder of Frequency Partners. She is a former senior politics editor for Follow her on Twitter @digisharon.