Proposition 56 – 325% Increase In Tobacco Tax
Proposition 56 raises tobacco taxes from $0.89 per pack to $2.89 per pack – a whopping 325% increase. The proceeds of the tax increase will be distributed as follows:
- First: to replace old revenue lost due to lower tobacco consumption resulting from prior tobacco tax increase.
- Second: the next 5 percent of revenue to pay the costs of administering the tax.
- Third: allocate $48 million to enforcing tobacco laws, $40 million to physician training to increase the number of primary care and emergency physicians in the state, $30 million toward preventing and treating dental diseases, and $400,000 to the California State Auditor to audit funds from the new tax.
- Fourth: allocate 82 percent of remaining funds toward services related to Medi-Cal; 11 percent of remaining funds toward tobacco-use prevention; 5 percent of remaining funds toward research into cancer, heart, and lung diseases and other tobacco-related diseases; and 2 percent of remaining funds toward school programs focusing on tobacco-use prevention and reduction.
We commonly support more modest “sin taxes” because we think they are a positive way of creating economic disincentives for dangerous activities while concurrently raising revenues for needed government activities (at least when dollars are allocated well). Readers may recall that in 2012 we urged (successfully) opposition to Proposition 29 – an earlier effort to raise tobacco taxes – because we did not like the way the money would have been spent under that proposal. Following some great back-and-forth discussion in our comments section we assured readers who liked the “sin tax” aspect that if we rejected Proposition 29, a newer, better, tobacco tax would soon be offered. We think this is it.
First, unlike some initiatives that have no good reason for being offered as initiatives except that they want to avoid legislative scrutiny, this one seems to have a much better reason. Or at least better justification for the same reason. Here, that legislative scrutiny hasn’t worked out so well for efforts to raise tobacco taxes in the past. Specifically, 35 efforts to raise the tobacco tax rate in the legislature have been defeated over the last 34 years, resulting in California having the lowest tobacco tax among any of its neighboring states and the 13th lowest tobacco tax in the nation. For a specific example of how the Tobacco Lobby spread money around to capably kill a recent anti-tobacco initiative, check-out this piece in the Sacramento Bee. We don’t pretend to have great knowledge of the “sweet spot” for tobacco tax, but we are pretty confident that selling cigarettes much more cheaply than neighboring states is good for the business of selling cigarettes but not-so-good for the policy of reducing cigarette consumption and the resulting diseases it causes.
Second, unlike past taxes that have just gone to create what appeared to be slush-funds, the proceeds of this tax are spread across general fund obligations (Medi-Cal which is presently dramatically underfunded) and targeted payments toward smoking-related issues. For a good analysis of why these expenditures make sense read the editorial boards of the L.A. Times and Sacramento Bee’s supporting analyses of this measure.
Our one hesitation in supporting this measure is the massive percentage increase. We are cognizant that cigarette smokers disproportionately draw from economically disadvantaged communities. In fact, not only do a majority of smokers come from such communities, those in that strata are just as likely to try to quit smoking but substantially less likely to successfully kick the physically addictive habit. Like any flat-tax we know that this massive increase will disproportionately affect these lower-income earners.
While the disproportional effect on the poor makes us uncomfortable, we can’t ignore the reality that the state is on the hook for an estimated $3.5 billion annually for tobacco-related illness costs and that some (admittedly partisan) groups estimate the true cost to the state for each pack of cigarettes sold to be around $18. While we think that second number is probably inflated the first is fairly conservative, other sources noting the 40,000 deaths annually in California tied to smoking, peg the annual health care costs to be closer to 13 billion. Most importantly, “[o]n average, peer-reviewed studies have shown, a 10% increase in the total price of cigarettes will yield a 3% to 4% reduction in adult consumption — and a 7% reduction among young smokers.”
Our readers already know to ignore ad campaigns associated with these propositions – we generally find that both sides are dishonest in these ads – this editorial addresses some of the more egregious claims the “no” campaign is using including the idea that the proposition takes money away from schools. It doesn’t. Or doesn’t increase anti-smoking funds. It triples them. Some ads are also critical of applying the tax to e-cigarettes because those might help curb smoking. That’s not quite right either, impressively, the proposition automatically removes the tax from e-cigarettes in the event that the FDA determines that e-cigarettes are a legitimate smoking “cessation device”.
Finally, we’d be remiss if we did not point out the dissonance between voting to legalize marijuana and its lesser, but still existent, dangers while concurrently raising taxes to dissuade smokers from that dangerous activity. The difference to us is one of degrees. As we point out in our analysis of Proposition 64 there we are motivated by a desire to decriminalize – not “normalize” – we acknowledge that some of the later will come with the former. Similarly, even though we think tobacco is more dangerous than marijuana, we would not support criminalizing its use or sale.
Recommendation: Solid YES.