Merli Column: Few hardships on Tobacco Road

Despite the curious ups and downs of the stock market these days, it seems increasingly clear that in the Commonwealth, those who say we’re all in for a slow and painful recovery may be on to
something. Cock-eyed optimism has its place, but not when it clashes repeatedly with the real world.

For many of us in Prince William and surrounding locales, the latest financial news is jarring and for the most part, a bit unexpected in its magnitude — despite all the obvious warning signs. State
lawmakers at a hearing in Richmond this week were told in no uncertain terms the Commonwealth is about to experience a budget shortfall of more than $2.5 billion within the next two fiscal years.

That’s “B” as in the late Carl Sagan’s “billions and billions” and while Sagan was talking about stars, we’re talking about cash. An estimated $2.7 billion is a lot of money that we won’t be earmarking
anytime soon for schools, transportation, basic state services, and other typical prerequisites of 21st century Virginia.

This week’s ominous state forecast was the result of both weak revenue streams and mandatory annual increases in some spending programs, the Associated Press reminds us, and comes on top of
$5.6 billion in reductions to the current two-year state budget. To say we’re flat broke (or soon will be) is a gross understatement.

While the Commonwealth has seen hard times before, it’s been a while, and it doesn’t help that potential new revenue from federally mandated higher taxes on luxury items like tobacco (if we can call
physical addiction a “luxury”) are vastly undercut, albeit legally, through some agile sidestepping of the law. (If tobacco lawyers and marketers ever put their considerable skills to furthering really worthy
causes, what a wonderful world it would be, yes?)

In tobacco’s case, backers of the weed that helped create the Commonwealth of Virginia in the first place have found a loophole in the new federal tax on roll-your-own cigarette tobacco. The law signed
by the president several months ago, designed to help expand adequate health insurance for children, placed a massive tax increase on this poor cousin of big tobacco (the roll-your-owns) from about $1
a pound to nearly $25.

While roll-your-own tobacco is typically less coarse and dryer than pipe tobacco, tobacco interests discovered that by simply labeling its roll-your-own product as “pipe tobacco” (and by refining its cut
and blend a bit), it could avoid the new tax levy almost entirely.

Consequently, the annual federal revenues lost, while hardly monumental, were not insignificant, either — at nearly $400 million. And while the behemoth traditional cigarette makers based in Richmond,
the Carolinas and elsewhere are not directly affected by the tax, the fact that massive loopholes like these are still being exploited when Virginia and most other states are suffering severe financial
hardships prompts the nagging question, “What’s wrong with this picture?” (And we think only Wall Street is taking advantage of taxpayers?)

There is an irony here in the tobacco case that may underscore the inherent unfairness of a bad economy that’s so often thrust on those who can least afford it. Roll-your-own cigarettes (health hazards
aside for the moment) are made by small independent companies, for the most part, and largely consumed by low-income smokers who can’t afford the highly marketed, slickly packaged, boldly-colored
packs of Marlboro and Winston.

So when Washington regulators repair the intended tax rate for roll-your-owns by distinguishing them in more detail from “pipe tobacco,” it’s the small tobacco companies and lower income folks who will
feel the pinch.

At the same time, the current financial crisis is going to mean “doing without” in far more serious ways than tobacco habits for virtually everyone in the Commonwealth for a few more years. And let’s hope
those nimble-minded, tax-loophole experts of the world don’t further exacerbate the crisis by cutting the Commonwealth’s dire revenues even further.

John Merli has been a Prince William County resident since 1984, and a Potomac News columnist since 1985. He has worked in the media for more than 30 years. E-mail him at: j.merli@comcast.net.