Lights out on tax on cigarettes?

Now that the election is in the history books, Danville City Council’s next task is to finish work on the 2012-13 budget — one that’s likely to include a new local tax on cigarettes. Danville’s proposed budget doesn’t try to justify this new tax on health grounds. In that argument, the cost of smoking is raised to the point where smokers are forced to quit. That’s not happening here. Neither is there any acknowledgment of tobacco’s role in Danville’s rich history.

The city is, of course, best known for being a transfer station for tobacco from nearby farms to the companies that turn that tobacco into cigarettes. You won’t find any references to that irony in this proposed budget. Instead, Danville’s proposed cigarette tax is simply about adding another 30 cents to the price of pack of cigarettes, with the hopes of generating another $100,000 in the upcoming budget year and as much as three times that amount once the cigarette tax is levied for an entire year.

 Danville is one of nine Virginia cities (out of 39) that do not charge the cigarette tax. That would seem to put the matter in the realm of "We should do it because just about everyone else is doing it." But the real question that should be asked right now is "What are the unintended consequences of adding to the cost of cigarettes purchased in Danville?" Danville is not an island surrounded by dozens of miles of empty space. If the cigarette tax is enacted in the next few weeks, store owners won’t start collecting it until Jan 1.

That’s plenty of time for some of them to figure out where to locate new stores that will sell cigarettes for less in Pittsylvania County or Caswell County, N.C. Of course, it costs a lot of money to make the kind of capital investment simply to create a price advantage for cigarettes sold just over the border. But the border isn’t all that far from most of Danville, and the members of City Council would be wise to consider the competitive disadvantage that they could be creating for the city’s merchants.

 For a city like Danville, which has developed into a retail hub for the surrounding communities, that competitive disadvantage might have the unintended consequence of spreading the hub’s retail sales to areas beyond the reach of the Municipal Building’s tax collectors. That concern is worth considering now, before it’s too late. Danville certainly needs new revenue, but the better choice this year is to find more savings in the lines of municipal government spending. Tax increases may be a forgone conclusion, but their bite is numbed when people know their political leaders were willing to take a tough look at spending before they raised an entirely new tax.