Monday, June 04, 2012

California Considers Tobacco Tax Hike With Legislature On Sidelines

California currently imposes a cigarette tax of 87¢ per pack of 20 cigarettes. That's well below the rates imposed in a number of other states, including neighboring Arizona ($2 per pack) or Oregon ($1.18 per pack). It's slightly higher than Nevada's 80¢ per pack. By comparison, New York imposes a $4.35 per pack (NYC is $5.85), New Jersey is $2.70 per pack, and Connecticut is $3.40. Out on the West Coast, Washington imposes a more than $3 a pack tax.

Consumption rates have dropped in the NYC metro area with the combination of higher taxes and more restrictive locations where smoking is permitted, which creates its own problems.

Health programs funded with tobacco taxes would see lower appropriations unless the taxes are increased to cover losses (and those who kick the habit because of higher taxes/restrictions). If the state doesn't hike the taxes periodically, the programs lose necessary funding and have to curtail their operations or else draw upon general funds instead (which in CA isn't possible due to its budget woes).

The question becomes whether the tax hikes will deliver the revenues projected, and what happens to the programs when the revenues fall short (does it require higher and higher taxes or shifting funds from other programs to cover the health programs funded by the tobacco taxes).

Californians not only have to deal with the potential windfall due from a potential $1 per pack tax hike on cigarettes, but a general distrust of the state legislature to spend the money wisely. They might be for a cigarette tax hike, but they're against the legislature spending it.
The tax, which would raise an estimated $735 million, is being voted on as California is reeling from a new wave of bad budget news. Gov. Jerry Brown announced last month that the state was facing a deficit of $16 billion, and he proposed a round of severe spending cuts to deal with it.

But none of the $735 million would go to close the deficit. Organizers argued that the tax would have less chance of passing if voters thought it would go into the state coffers, and said that their only goal here was cutting down on smoking. Raising the cost of tobacco has proved to be the most effective way of discouraging smoking, particularly among teenagers.

“The voters in this state are disinclined to give money — even tobacco money — to the Legislature to spend: they don’t trust them with the money,” said Don Perata, a Democrat and former president pro tem of the State Senate, who is the author of the proposition. “We’ve become such a damned antitax state that we’ve demonized any kind of tax.”

Still, the image of a $735 million windfall rushing in at a time when California is facing a three-week cut in the school year has proved, at the least, discordant. The editorial board of The Los Angeles Times, while proclaiming itself uncomfortable to be siding with the tobacco industry, urged voters to defeat it.

“It just doesn’t make sense for the state to get into the medical research business to the tune of half a billion dollars a year when it has so many other important unmet needs,” it said. And opponents have seized on this as one of their central arguments.

“Isn’t that a little strange?” said Michael C. Genest, a former director of finance for the state who worked as a consultant to the “No on 29” effort, noting that Mr. Brown had just announced the state’s latest budget shortfall. “It’s astonishing to me that someone would go to these lengths to have a major tax increase and none of it would go to the budget.”

At 87 cents, the cigarette tax here is about half the national average, and it ranks 33rd in the nation — down from the third highest in 1999. California is one of only three states that have not raised the cigarette tax over the past decade. About 12 percent of Californians now smoke.
The money would be dedicated to cancer research and smoking cessation programs, not balancing the budget. Proponents believe that the limitation on where the money goes in the state budget is a plus; anti-tax sentiment is such that no one trusts the legislature to spend the money appropriately.

Opponents in the tobacco industry are apparently so fearful of this initiative's passage that they're throwing serious money to stop it: $47 million.

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