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Fee -- 'it's not a tax' -- could hit smokers
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Gov. Tim Pawlenty says his proposed tobacco fee would raise $380 million, which could help bridge a budget gap. (MPR Photo/Tom Scheck)
Gov. Pawlenty is proposing the state collect an additional 75 cents a pack on cigarettes. He's calling the new money a "health impact fee," and says the money would be used to pay for state health-care costs. Pawlenty insists his proposal is a fee, not a tax. The distinction is critical because a budget deal could hinge on Pawlenty's ability to come away from negotiations saying he's standing by his pledge to not raise taxes.

St. Paul, Minn. — Three days before the mandated end of the legislative session, lawmakers are nowhere near agreeing on a new two-year budget. The budgets that passed the House and Senate are more than $1 billion apart. Pawlenty says his proposed tobacco fee would raise $380 million, which could help bridge the gap. He says the idea doesn't violate the no-new-taxes pledge he signed as a candidate for governor.

"I believe this is a user fee. Some people are going to say it's a tax. I'm going to say it's a compromise and a solution to move Minnesota forward," Pawlenty said.

Pawlenty says the fee would be collected at the wholesale level, not by retailers. He says he's been working on the idea for six months, knowing that it could be part of an end-of-session deal. He also credited Rep. Ray Cox, R-Northfield, who introduced a bill for a fee on cigarette distributors earlier this session. Cox says the idea makes sense, because smoking-related health problems cost the state more than $600 million a year.

"I would be proud to have carried the bill forward and introduced it that gets a deal done, because I think this is fine policy," Cox said. "I think it blends in with Minnesota's overall view of smoking and if it raises some revenue to do some other good things in government here, fine."

Cox says he doesn't care whether it's called a fee or a tax, but says since smokers are the only users of tobacco, he says it fits the definition of a user fee.

Some DFL lawmakers disagree, and say Pawlenty has just proposed a tax increase. It's also happens to be a money raiser that many Democrats support.

House Democrats last month proposed a tobacco wholesale fee of an additional 50-cents a pack. House Minority Leader Matt Entenza of St. Paul says the money should help pay for state health-care programs.

"Tobacco costs us billions of dollars in health care costs, and it makes sense, rather than throwing people off of insurance, we should have some sort of tobacco tax or fee -- whatever he wants to call it," Entenza said.

Senate DFL leaders haven't proposed a cigarette fee, but they're not ruling it out. Senate Majority Leader Dean Johnson of Willmar says he doesn't know if his caucus will support the idea.

"Number one, it depends upon the rate, it depends upon what the money will be used for and, number three, I can't begin to tell you among the 36 members if there were two votes or 35 votes. I don't know," Johnson said.

Senate Democrats have already proposed raising income taxes on the wealthiest Minnesotans. Johnson says DFLers are interested in any revenue raiser that would go to health care and public education.

Under the budget Pawlenty proposed four months ago, at least 27,000 Minnesotans would no longer be eligible for MinnesotaCare, the state's subsidized health insurance program for the working poor. Pawlenty says even if his health impact fee is enacted, it's unlikely that all of those people will still be eligible for state health care programs.