Saturday, April 18, 2009

Tobacco Taxes for SCHIP fail citizens

March 27, 2009
Has the Government Taken the Tobacco Fight to Far?

Recently the federal government has increased the nationwide excise tax on all tobacco products. This tax comes with some hefty prices tags for consumers. The problem with the tax is that the people we are trying to protect are not the ones getting protection. As of two weeks ago the cigarette manufacturers increased the cost of cigarettes by almost $8.00. This was 3 weeks prior to the governments scheduled excise tax increase on April 1st. Where does that money go? It fills the pockets of the tobacco manufactures!

Most Americans don’t realize that with the increase to tobacco comes a floor tax. This means that everywhere tobacco products are stored or manufactured, including retailers, have to pay the tax for everything in-stock. As you can see the manufactures already have the tax covered, but what about the wholesalers and retailers? The increases have been passed through the supply chain to the consumer, but the floor tax has not. Will tobacco prices sky rocket on April 1st? Only time will tell.

I believe the government is picking on the weak, minority. They constantly talk about raising taxes to reduce consumption and keep the cigarettes out of our children’s hands. Recently, a Representative from the state of Louisiana proposed a $1.00 per pack tax on cigarettes on top of the federal tax. I sent her a letter:

“I think it's time we talk about ways to keep cigarettes and tobacco products out of our kids’ hands while preserving the revenues Louisiana receives from tobacco. A little over two years ago the Louisiana Smoke Free Air Act was passed. This act was designed to keep second hand smoke away from our citizens and our children by limiting smoking to areas where adolescents (under 18 years of age) can not legally frequent.

Now, is the time to go one step further? We need to make it a crime to ship tobacco products in the state to individuals, and we need to limit the stores where tobacco products can be marketed inside our state. It is time to limit tobacco sales to locations that do not allow anyone under the age of 18 into their establishment. It is time to remove cigarettes and tobacco products from the counters and point of sale back drops of gas stations, grocery stores, pharmacies, and anywhere that allow persons under the age of 18 to enter. Louisiana needs face to transactions for tobacco products. It's the only way to be sure the consumer is of age.

According to the Office of Alcohol and Tobacco website there are over 6,000 current permits issued in the state of Louisiana allowing individuals to sell tobacco products. That is a lot of places for underage individuals to seek tobacco products or even be influenced by the marketing when they get food, gas, or even medicine.

A $1 increase on a pack of cigarettes would cost consumers an extra 277%. If we taxed gas prices at the same rate, it would be a no-brainier veto costing consumer over $6 a gallon. Increasing the taxes will just entice the criminals into marketing the products to our children.”

The Representative responded with statements that confirmed my suspensions. In the very first lines of her rebuttal:

“Thank you for your thoughtful email and your creative suggestions to keep cigarettes out of the hands of our youth. Although these may be worthy goals, they don’t address Louisiana ’s budget shortfall. A tax increase will not only help fill the state’s current $2 billion budget gap with new revenue but, most importantly, it will reduce youth smoking and save lives.”

When it comes to the discussion of tobacco in the United States , no one talks about the issues of the government lying about the goals they are truly trying to achieve. This representative did not talk about the suggestions put forth; all she was worried about is tax revenue. Limiting the places where tobacco products can be sold would present problems and reductions in the budget gap she was trying to fill. A $1.00 tax would reduce adult consumption by 4%. A limit on where cigarettes could be purchased would more than double that. It would more than triple the reduction in adolescent smokers.

The Center on Budget and Policy Priorities concludes,

"State financial problems develop when cigarette taxes are used — and particularly if they are earmarked — to fund education, health services, or other programs that inevitably grow in cost over time as a result of inflation, population growth, and other factors. A revenue source that declines over time cannot support a program that naturally increases in cost over time. In addition, cigarette taxes — like all consumption taxes — are regressive; they represent a greater proportion of the income of poor and near-poor households than they do of higher income households. A study found that expenditures on cigarettes amount to 3.2 percent of the income of people in the bottom fourth of the income distribution, but only 0.4 percent of the income of people in the top fourth. Thus increases in cigarette taxes particularly burden the poor. The acceleration of the decline in consumption following cigarette tax increases can be highly desirable when viewed from the perspective of health promotion. From the point of view of those concerned about the adequacy of state revenues to maintain programs, on the other hand, the implications of the consumption decline are problematic. State revenues support state expenditures. State expenditures generally rise each year — even if no new programs are created — because population grows, inflation drives up the costs of everything government purchases especially health care), and state employee wages must be increased to be reasonably competitive with private sector wages. This means that state revenues have to rise each year if they are to support adequately the continuation of existing state spending policies. When cigarette taxes are a component of state revenue — as they are to some degree in every state — a problem is created. Even when specific tax increases do not drive down cigarette consumption, cigarette taxes do not keep pace with spending needs. Excise taxes, such as taxes on cigarettes, alcohol, and gasoline are levied at a specified rate based on the quantity of levied, for example, at $1.50 per pack. Thus if demand for cigarettes is not growing — that is, even if demand is stable rather than declining — the revenue yield from the excise tax does not grow. Unlike a general sales tax or an income tax, the cigarette tax revenue cannot grow in tandem with growth in the state economy. Moreover, as discussed above; the long-term trend in demand is not stable but rather declining."

We have let the government convince us the increase in taxes is good for society. As you can see above the legislators are producing future revenue problems. We need to find a new way to raise funds.
One discussion that never makes into the news is the possibility of Black Market Trade.
Here is an article written by Robert A. Levy, published by

“Oozing self-righteousness, anti-smoking activists were quick to pounce on a guilty plea by an R.J. Reynolds affiliate charged with smuggling cigarettes into Canada . One might have expected -- to no avail -- a parallel admission of guilt by the activists who were responsible for the huge increase in Canada 's tobacco tax during the late '80s and early '90s. As a result, smuggled cigarettes accounted for an estimated 40 percent of consumption. Later, Canada was forced to lower the tax in order to keep smuggled cigarettes away from children.
Instead of drawing the obvious lesson from the Canadian experience, industry critics proclaim that tobacco companies will henceforth have "absolutely zero" credibility when they raise the black-market argument. After all, the critics say, those same companies partly caused the black market. If you don't quite follow that logic, here's a recap: (1) tobacco companies predicted that higher taxes would provoke black-market activity; (2) black-market transactions did indeed materialize, in which at least one tobacco affiliate participated; therefore (3) we should ignore any future speculations about black-market activity. Got it now?
We never seem to learn. Michigan, New York, California and Maryland hike their cigarette taxes, and the result is rampant smuggling -- not just from low-tax neighboring states, but from military bases and Indian reservations, even exports to Mexico that are smuggled back to the United States . With 23 billion packs of cigarettes sold here each year, a $1.00 bump in price will mean $23 billion in potential black-market profits -- about four times the U.S. net income of Philip Morris, Reynolds, Lorillard and Brown & Williamson combined.
Ask yourself why 44 million adult consumers of a perfectly legal product should have to fork up because retailers and 1 million kids break laws against sales to minors that are on the books in all 50 states. The way to keep cigarettes from kids is to enforce those laws -- demand proof of age, prosecute offending retailers and prohibit vending machine sales where youngsters are the primary customers. If instead we depend on price hikes to dissuade teenagers, we can count on illegal dealings dominated by criminal gangs hooking underage smokers on adulterated products without the constraints on quality that a competitive market normally affords.”

The alternative to the tax I presented you is the proper way to help reduce future health service costs effects of smoking. If it is the government’s policy to segregate one portion of the population by imposing a "sin" tax, I believe you should be fair to the citizens of the United States and call it as so. This is not a time for politicians to introduce "feel good bills". We need to fix problems not Band-Aid them.


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