From MSNBC.com's Tom Curry
Saturday’s golf summit brings together the most famous smoker in American politics, House Speaker John Boehner, and its most famous ex-smoker, President Barack Obama. (Vice President Biden and Ohio Gov. John Kasich complete the foursome.)
Back in 1965, when Boehner was a teenager, 42 percent of American adults were smokers. As of 2009, about one-fifth of adult Americans were smokers.
“It’s a bad habit, I wish I didn’t have it, but I have it,” Boehner said in an interview last January with NBC’s Brian Williams. And when Fox News Chris Wallace asked the speaker about his smoking, he replied “I choose to smoke. Leave me alone.”
Although smokers are a shrinking minority of the population, they’re a small but reliable source of revenue for the states and for the federal government.
The federal government collected $16.6 billion in tobacco tax revenue in 2010, less than one percent of total revenues.
State sales taxes on tobacco products accounted for $16.8 billion in revenue in 2010, which was 2.4 percent of the states’ total tax collections. Fiscal distress led seven states to increase cigarette taxes last year, after 18 states did so in 2009.
If Boehner buys his cigarettes in the District of Columbia, he pays a $2.50 per pack tax on top of the $1 federal tax. If he crosses the Potomac to Virginia he can pay one of the lowest cigarette taxes in the nation, 30 cents per pack.
Increasingly, the states’ tobacco tax hikes are at odds with their reliance on the billions that tobacco companies are scheduled to give them under the Master Settlement Agreement negotiated in 1998.
Under that deal, states gave cigarette makers immunity from state lawsuits in return for annual payments in perpetuity from the companies. The payments are pegged to cigarette consumption and other factors.
The deal was estimated to be worth about worth $200 billion over the first 25 years.
But several states didn’t want to wait for the money, so they designed “securitization” deals in which they sold bonds backed by the future revenue streams from the tobacco settlement.
Last year, for instance, Illinois floated a six-year, $1.5 billion securitization deal. The state used the proceeds to pay its backlog of bills. In 2007, Ohio sold a $5.5 billion, 45-year securitization deal.
Last year, due to a decline in cigarette consumption, the tobacco-settlement payments to the states fell 16.4 percent to $6.4 billion, nearly $2 billion less than originally forecast.
This underscored the risk to bond buyers: that cigarette consumption will decline more sharply than forecast, which would mean tobacco firms’ payments to the states under the settlement would fall, leaving insufficient revenue and causing the bonds to default.
Not the kind of default that Obama and Boehner may be discussing Saturday, but a reminder that in government, sometimes creative financing doesn’t go exactly as planned.