Congress is considering a huge increase in the federal excise tax on cigarettes that North Carolina officials fear will deliver a heavy economic hit to farmers, manufacturers, state revenue and a share of tobacco money that pays for health and economic development programs.

Smokers and convenience store owners would also feel the pinch of the proposed tax increase, which would push the average price of cigarettes in North Carolina to more than $4 a pack. For someone with a pack-a-day habit, that means spending as much as $222.65 more a year on a favorite brand.

"It's too high now," said Richard Commander, 46, a mechanic at a service station in Raleigh's Five Points who has smoked since he was 15. "They're picking on us smokers and the tobacco farmer."

Despite the threat of a presidential veto, North Carolina cigarette manufacturers, tobacco farmers and agriculture officials see a steep tax increase as nearly inevitable because the money would pay to expand a children's health program that will be politically difficult to vote against. The measure is popular with Democratic leaders who control both houses of Congress.

The question, to North Carolina tobacco and agriculture interests, is how big the increase will be. A bill that passed the Senate Finance Committee this week calls for an increase of 61 cents, which would raise the federal levy to $1 a pack; the House version contains a 45-cent increase.

They're also worried about the ongoing legislative effort to give the U.S. Food and Drug Administration the power to regulate tobacco products. A bill sponsored by Sen. Edward Kennedy, chairman of the Senate health committee, got a hearing last week; it would restrict tobacco advertising, prevent sales to minors and require the removal of harmful ingredients.

"North Carolina could be in for a double whammy," said Steve Troxler, commissioner of the state Department of Agriculture and Consumer Services.

If the Senate version becomes law, North Carolina would lose at least $540 million a year from decreased cigarette production, smaller cash receipts to tobacco farmers and a lower share of tobacco settlement money, said Blake B. Brown, an agricultural economics professor at N.C. State University. Those losses would result from an anticipated decline in cigarette sales because of the nationwide tax increase.

Others see 2% decline

But anti-smoking advocates say some of these fears are unfounded. They say cigarettes are so habit-forming that the decline in sales will be small -- about 2 percent. The tax will also sharply dampen teen smoking.

"From year to year, there's never going to be a sharp, surprising decline," said Eric Lindblom, policy research director for the Campaign for Tobacco-Free Kids in Washington, D.C. "Cigarettes are too addictive."

According to Brown's estimate, though, the impact would ripple across North Carolina, where tobacco is no longer king of cash crops but is still a potent economic force.

Despite an overall decline in tobacco farming, the golden leaf is still the state's fourth-leading agricultural commodity behind poultry, hogs and plants grown in greenhouses and nurseries.

Cigarette manufacturers also accounted for $22 billion in value-added revenue in 2005, said Brown -- roughly 6 percent of North Carolina's economic activity. The Senate's excise tax increase would slice about $500 million from that figure, Brown said, as cigarette manufacturers trimmed production.

Less from settlement

Making fewer cigarettes would also reduce North Carolina's yearly share of $206 billion that the nation's largest cigarette manufacturers agreed to pay 46 states over 25 years, Brown said.

Those payments stem from a 1998 agreement to settle lawsuits filed by state attorneys general to recover health costs caused by smoking. North Carolina's share, about $142 million this year, is split three ways. The Golden LEAF Foundation, a nonprofit corporation, gets 50 percent of the money and makes economic development grants in tobacco-dependent communities. The rest is divided between two state bodies: the N.C. Tobacco Trust Fund Commission and the N.C. Health and Wellness Trust Fund.

Brown said that North Carolina would lose up to $12 million in tobacco settlement payments each year under the Senate's version of the excise tax increase. Those payments are tied to the volume of cigarettes produced by manufacturers.

"For us, any hit like that would be very difficult," said William Upchurch, executive director of the Tobacco Trust Fund Commission, which gives money to individuals displaced by the decline of tobacco consumption.

A jump in the federal excise tax also would reduce income from North Carolina's own excise tax -- 35 cents per pack -- by as much as $12 million a year, according to Brown's estimate.

Down on the farm, the federal tax could trim up to $16 million from tobacco crop sales, a blow softened by exports. North Carolina produces 72 percent of the highest-grade flue-cured tobacco grown in the United States, but more than half is sold overseas, said Loren Fisher, tobacco extension specialist at NCSU.

Fighting the raise

North Carolina politicians say they will fight the tax increase but know they have to tread carefully because of the popularity of the child health care program, which gives federal grants to states that provide health insurance to low-income children.

Sens. Richard Burr and Elizabeth Dole, both Republicans, oppose the tax increase but support the child health program. Brian Nick, chief of staff for Dole, said his boss will support an alternative bill sponsored by two GOP Senate leaders that wouldn't increase the excise tax.

A loose coalition of tobacco companies, convenience store owners and conservative think tanks also opposes the measure, saying an excise tax is a regressive levy that places an unfair burden on low-to-middle income people who happen to have a socially unacceptable habit. They also say proponents of the tax increase use faulty logic in claiming the levy will both decrease the number of smokers and provide the children's health program with a sound source of revenue.

"This is a popularity contest, not a policy contest," said Tommy Payne, spokesman for Reynolds American Inc., the parent company of the Winston-Salem-based cigarette manufacturer.

(News researcher Denise Jones contributed to this report.)

Get $150+ in coupons in every Sunday N&O. Click here for convenient home delivery.