Democrats propose tobacco, alcohol tax increases

Matthew Albright | The News Journal

Democrats have unveiled plans to raise taxes on alcohol, cigarettes and "vaping" products as part of their solution to the state's $400 million budget quandary.

Combined, the proposals would raise $18.8 million for the next fiscal year. The increases would take effect in September.

"I can't imagine anybody's happy about a tax increase," said Speaker of the House Pete Schwartzkopf, D-Rehoboth. "But we've got to get more revenue to avoid some of the cuts we're talking about."

THE BACKSTORY: An in-depth look at the state's budget showdown

Here's how the alcohol taxes would increase:

The tax on a six-pack of beer would grow by 12 cents, to 21 cents.

The tax on a 750 ml bottle of wine would grow by 15 cents, to 34 cents.

The tax on a 750 ml bottle of spirits would grow by 15 cents, to 89 cents.

The alcohol tax is based on volume, not value. So the tax on Glenlivet scotch is the same as Captain Morgan rum, and the tax on Dogfish Head beer is the same as the tax on Pabst Blue Ribbon.

Here's how the cigarette taxes would increase:

The tax on cigarettes would increase by 50 cents per 20-cigarette pack, to $2.10.

A new five-cent tax would be imposed on each millimeter of fluid for e-cigarettes or "vapes."

The tax on moist snuff would grow from 54 cents to 92 cents

The tax on all other tobacco products would grow from 15 percent of the wholesale price to 30 percent

If passed, legislators would take a different approach than Gov. John Carney did in his budget proposal. Carney did not ask for an alcohol tax increase, but asked for a larger cigarette tax increase of $1 per pack.

"I thought that was excessive," said Sen. Gary Simpson, R-Milford and the Senate Minority Leader.

Carney has said he will accept tweaks to his proposals if they help legislators reach a larger balanced budget deal.

Legislative leaders in both parties believe the taxes can pass as part of the compromises over the state budget. Schwartzkopf said he intends to have the bill brought up in committee on Wednesday and, if it passes there, voted on in the House on Thursday.

RELATED: Read about the Democrats' income tax proposal

RELATED: The General Assembly recently hiked corporate taxes

"I think we'll come to a resolution on those two taxes," said Simpson.

Schwartzkopf and Simpson both point out that the alcohol tax hasn't been increased since 1990. In fact, taxes on spirits were actually reduced in 1997.

Still, alcohol producers, distributors and sellers are anxious about taxes increasing.

"There would not only be an immediate short time impact on the bottom line of our brewers, some of whom are struggling to make ends meet, but it would particularly affect new brewers coming into the state," said John Klein, president of the Delaware Brewers Guild, which represents 18 breweries in the state.

Klein, who works for Dogfish Head, points out that the tax on a barrel of beer will go from $4.85 to $11.46, which he called a "huge" increase. He said most brewers and sellers won't have any choice but to pass the cost onto the consumer and increase prices.

"I like to think that Delaware's a business-friendly state, especially a small business state," he said. "Keeping taxes lower is the path we should continue down."

Klein said the increase would make Delaware's alcohol tax much higher than neighboring states. But lawmakers argue that Delaware has zero sales tax, so the total burden is still low.

Smokers, vapers and stores that sell cigarettes won't be happy about the additional tax, but some medical groups — like the American Lung Association and American Heart Association — back legislators' efforts. They supported even higher rates.

"Tobacco is the number one cause of preventable death in Delaware and nationwide," stated the IMPACT Delaware Tobacco Prevention Coalition, a group of health and public advocacy groups, in a letter to The News Journal. "This fact alone is sobering and should make the case for legislators in this state and across the nation to take appropriate action to curtail tobacco use."

Lawmakers have already signed off on increasing corporate taxes by more than $116 million. If the tobacco and alcohol taxes pass, they will have about $134 million.

Despite these agreements, the burning question in Legislative Hall remains unanswered: will legislators raise personal income taxes?

Gov. Carney and his fellow Democrats believe the income tax is stable and grows with the economy, so raising it is a vital part of a long-term budget solution. Yet Republicans say they won't provide the votes necessary to pass it unless Democrats consider some of their ideas for spending reform, like a three-year elimination of the prevailing wage.

Lawmakers have until June 30 to strike a deal.

"We're still at a standstill on that issue," Simpson said of the income tax. "I think my caucus, and I've heard the same thing from the House Republicans, we're not willing to budget without getting a meaningful move on prevailing wage."

Schwartzkopf said he is hopeful that negotiations on the budget can come to a head next week after the last meeting of the Delaware Economic and Financial Advisory Council, a panel of economists and state officials that estimates how much the state will have to spend.

"My hope is that, Tuesday, we'll have a different tenor of the discussion," Schwartzkopf said. "We still have time. We have 7 legislative days, and a lot can happen in 7 days."

Contact Matthew Albright at malbright@delawareonline.com, (302) 324-2428 or on Twitter @TNJ_malbright.