In a move that will likely surprise few smokers in Philadelphia, Harrisburg quietly removed a sunset provision for the city’s $2-dollar-a-pack cigarette tax.
The tax, introduced by Mayor Michael Nutter’s administration in 2014 to close a school funding deficit and authorized by Harrisburg, would have been up for a reauthorization vote in 2019. It is now effectively permanent.
Senate Democrats billed it as a victory for Pennsylvania’s largest city.
"The sunset provision prevented the city from being able to budget into the future,” wrote Ben Waxman, a spokesperson for Philadelphia-area state Sen. Vince Hughes, who pushed for the change. “The elimination of the [provision] will allow for the City and the School District to create financial plans based on a predictable source of revenue beyond 2019.”
Perhaps reflecting the spirit of compromise that has dominated this year’s legislative process, Republicans were equally ebullient on the change, echoing virtually the same talking points.
“Sunset provisions put some question into the budgeting process for the city and make it more difficult to budget in coming years,” said Jenn Kocher, a spokesperson for Republican Senate Majority Leader Jake Corman, who pushed for the original five-year sunset clause under pressure from tobacco lobbyists.
But conservative groups were livid that Harrisburg had snuck the change through the lengthy and complex budgeting process with little public discussion.
“I can’t say we are surprised by this. After all, ‘temporary’ tax increases almost always become permanent tax increases,” wrote Nathan Benefield, vice president of the Commonwealth Foundation, a free market think tank. “The lack of transparency with how the legislation was pushed through meant there was little time for deliberation, and no public input on this matter.”
Kocher defended the process, saying: “The decision is public in that it is included in the language of the bill.”
But the change – removing several lines from the state’s enormous tax code – would be nearly impossible for the average voter (or smoker) to easily spot. It also comes on the heels of other significant-but-nearly-undetectable tweaks to the code, like authorizing millions in tax breaks for developers in Allentown and carving out a $5 million tax credit for PA brewers.
Neither Senate Democrats nor Republicans would comment on City Hall’s role in lobbying for the changes. But Mike Dunn, a spokesperson for Mayor Jim Kenney, defended the move as a win for “the children of Philadelphia.”
He also noted that the changes included an insurance plan for the city if revenues from the tax declined, which has consistently fallen short of the $83 million pitched by the Nutter administration.
“The General Assembly also approved a provision that guarantees the District will get a minimum of $58 million from the tax; if revenues in a particular year don’t hit that number, the state will make up the difference,” said Dunn.
While state Republicans have been averse to raising broad-based taxes, the need for more revenue has resulted in a dramatic increase in numerous “niche” taxes on items like tobacco and smartphone apps. With a separate $1-a-pack tax passed by Harrisburg to help close the state’s budget hole this year, smokers now represent one of the largest government revenue sources in the state, despite their dwindling numbers – the PA Department of Health reported that adult smoking declined in PA by 25 percent between 1998 and 2010.
Benefield said this trend, which has notably exempted cigar sales, was fundamentally unfair.
“The reality is that cigarette taxes disproportionately harm the poor, result in increased cigarette smuggling, and – as has been clearly seen with Philadelphia’s experience – smokers crossing city and state borders to get a discount.”