Voters Just Say No to Higher Cigarette Taxes in All But 1 State

Californians were the only to agree to raise the price of tobacco. Will it impact smoking rates?
by | November 9, 2016
(AP/Rich Pedroncelli)

Read all of our coverage on 2016 ballot measures at governing.com/ballotmeasures.

As the rate of adult smokers continues to fall across the country, several states were hoping to entice more people to quit this year.

Voters in California, Colorado, Missouri and North Dakota were all asked to increase their state's cigarette tax on Tuesday. But only Californians obliged.

Missouri -- the state with the lowest taxes on cigarettes at just 17 cents -- had two competing cigarette tax measures, and both were rejected.

To people in public health, the point of such measures is clear: to eliminate the unhealthy habit. While it's unlikely to have a state with zero smokers, some say California could come close.

“Californians who do smoke are more casual smokers, typically not pack-a-day type people. I believe Prop. 56 could end up nearly eliminating tobacco use in the state,” said Stan Glantz, a professor of medicine at the University of California, San Francisco, and a vocal anti-tobacco activist.

Behind Utah, California already has the second-lowest smoking rate in the United States of 13.7 percent. It also has one of the lowest tobacco taxes at just 87 cents.

Studies show that sin taxes do reduce the number of smokers -- but only if the tax is high enough. A 2014 report from the Center on Budget and Policy Priorities found that a 10 percent price increase in tobacco products generally results in a 3 to 7 percent decrease in adult smokers.

Proposition 56 increases California taxes on cigarettes by $2 a pack and tax e-cigarettes for the first time.

But not everyone is convinced that cigarette taxes are worthwhile.

Bill Dombrowski, president and CEO of the California Retailers Association, argues that taxes like this don't work as intended.

“For us, it’s simple. When you tax cigarettes, it drives the sales to the black market. So you’re not getting tax revenue and you’re not helping public health."

In New York, which has the highest cigarette taxes, Dombrowski's assertion proved partially true. After the last tax increase in 2010, the portion of cigarettes that were illegally smuggled in the state rose slightly. Still, the rate of smoking has declined 19 percent since then.

But supporters say the black-market argument doesn’t hold up -- at least not in California -- because "the issue of smuggling has less to do with what the tax rates are and more to do with a state’s anti-smuggling laws,” said Glantz. In California, he points out, cigarettes have a unique stamp-like branding that’s hard to counterfeit and easy for inspectors to identify in stores.

For others against Prop. 56, their opposition stemmed from how the additional tax revenue will be spent.

Money from the existing tobacco tax is dispersed among anti-smoking programs, breast cancer research and child development programs. The additional $2 tax, which is estimated to rake in $1 billion a year, will go to the state's Medicaid program -- but the proposition doesn’t specify how it has to be used.

"Past tobacco tax increases created an explicit formula, and this was intentionally more flexible," said Lisa Eisenberg, policy director at the California School-Based Health Alliance, which supported the measure. "It recognizes that the conversation should be ongoing, that public health needs are constantly shifting."

But big tobacco companies like Phillip Morris and R.J. Reynolds, who led the opposition, argued that the revenue should instead go into the General Fund.

Advocates, however, believe that big tobacco companies would have been in opposition even if the money was going into the General Fund. Plus, they point out that it's not uncommon for tax propositions to establish special funds instead of contributing to the General Fund.

Furthermore, if tobacco companies and their supporters really cared about issues like smuggling, Glantz said they would stop lobbying against ways to track cigarettes the minute they leave the factory until they get sold.

With big tobacco companies leading the opposition, it’s hardly surprising that they massively outraised the supporters in every state voting on the issue. But after two failed ballot measures in the past decade to raise taxes on tobacco in California, it appears residents in the state had simply warmed up to the idea.

Read all of our coverage on 2016 ballot measures at governing.com/ballotmeasures.