Posted by Anne Landman on March 17, 2009

Throughout the 1980s and 1990s, the U.S. tobacco industry enjoyed tremendous success in beating back tobacco tax increases at all levels of government. But as the industry becomes ever more reviled and the economy goes further in the tank, raising cigarette taxes has become a much easier political proposition. Twelve states raised their cigarette tax in 2007 and 2008, with proposed legislation to do the same in 17 more states, as of February 2009. The federal government recently approved a tobacco tax increase of almost 62 cents per pack. When it goes into effect on April 1, it will bring the total federal tax on a pack of cigarettes to $1.00, to help fund the State Children's Health Insurance Program.

Cigarettes and moneyIt's a far cry from the heyday of Philip Morris' (PM's) national public relations and communications machine, whose sole purpose was to trounce any effort to raise tobacco taxes at any level of government. Throughout the 1990s, PM would unleash its formidable arsenal at the first whiff of a tax effort. Its tactics included fake "grassroots" organizations, legions of lobbyists, video news releases to ensure favorable "news" coverage, anti-tax messages on their products and widely-disseminated economic studies predicting disaster if the tax should increase. In the 1980s and early 1990s, the Tobacco Institute had a similar PR machine in place, creating a bulwark against tax increases that may be unparalleled in history.

While the tobacco industry's PR machines have since lost effectiveness, their arguments still influence debates today. Blogs and editorial pages around the country repeat the industry's anti-tax arguments. For example, a February 22, 2009, editorial in the Daily Herald of Wausau, Michigan, opined that cigarette taxes are regressive, hitting poor people the hardest; that raising the cigarette tax would stimulate smuggling; and that there is essentially no relationship between taxes and smoking rates. Every one of these time-worn arguments can be found in a 1983 Tobacco Institute report titled "New or Restated Economic Arguments Against Excise Tax Rate Increase on Cigarettes." More importantly, all of them have been disproved by historical experience.

Do cigarette taxes disproportionately burden the poor?

It is true that poor smokers spend a greater percentage of their income on cigarettes, and that a larger percentage of poor people smoke than rich people. However, the benefits of an increased tax will accrue to those who bear the burden of paying the tax.

As cigarette prices increase, people tend to smoke less, quit altogether or fail to take up the addiction at all. This leads to improved health among poor communities, as well as significant savings for low-income former smokers. Teenagers, who are often counted among the poor, are disproportionately affected by tax increases. Tobacco companies know this. PM marketing researcher Myron Johnston wrote in an internal report titled "Teenage Smoking and the Federal Excise Tax on Cigarettes":

[A] ten percent increase in the price of cigarettes would lead to a decline of 12 percent in the number of teenagers who would otherwise begin to smoke. ... [I]t is clear that price has an pronounced effect on the smoking prevalence of teenagers, and that the goals of reducing teenage smoking and balancing the budget would both be served by increasing the Federal Excise Tax on cigarettes.

Nearly thirty years ago, the industry secretly recognized that raising cigarette taxes would curb teen smoking while boosting public revenue.

Does raising cigarette taxes lead to smuggling?

If a state raises its tobacco tax substantially above that of neighboring states, it can lead to cross-border cigarette smuggling. That's why the tax rates of neighboring states are usually taken into account when a tax increase is being considered. It's a simple matter of good public policy to set cigarette taxes at a level that will discourage -- or at least won't encourage -- smuggling.

In 1994, in response to efforts to increase tobacco taxes in Arizona and Colorado, R.J. Reynolds formed a front group called the National Coalition Against Crime and Tobacco Contraband (NCACTC). The NCACTC hired Rod Stamler, a former assistant commissioner of the Royal Canadian Mounted Police, to "study" cigarette smuggling in Arizona and Colorado, and disseminate the results to the media in those states. A 1994 RJR letter stressed that NCATC's tobacco ties must remain secret. Another document drafted for NCACTC "members" by RJR suggests highlighting stories of retailers who had multiple robberies after a cigarette tax increase. It warns, "The United States ... may soon be on the verge of a return to smuggling and a black market not seen since Prohibition."

The tobacco industry has not only fanned fears of smuggling, it's actually created and stimulated smuggling rings, to pressure governments to roll back cigarette taxes. The most famous example involves Canada, which in 1991 doubled its tobacco tax. The following year, RJR subsidiary Northern Brands devised a convoluted scheme to smuggle cigarettes into Canada through the St. Regis Mohawk / Akwesasne Indian Reservation in upstate New York. RJR's scheme fleeced the Canadian and U.S. governments out of hundreds of millions of dollars in income, and the surge in black market sales led Canada to roll back its tax. The scam even allowed the industry to point to Canada as "an example of a country that was devastated by cigarette smuggling" in the wake of a tax increase.

Eventually, RJR's smuggling arrangement was discovered, and Canada sued RJR in U.S. courts. RJR's Northern Brands pleaded guilty and paid $15 million in penalties. But they weren't the only ones -- British American Tobacco, Brown & Williamson and Philip Morris affiliates have all been implicated in smuggling schemes around the world.

Where does the money go?

Money bagsWhile the smuggling and regressive tax arguments are largely specious, it's important to carefully consider where the funds raised by a tobacco tax increase will go.

A frequently cited and pragmatic goal of raising tobacco taxes is to discourage smoking. This means that cigarette sales -- and tobacco tax revenue -- will also decrease over time. Therefore, tobacco taxes should be used to fund needs that will similarly diminish. Examples include smoking cessation programs, health care assistance for smokers suffering from lung disease and medically-supervised nicotine addiction therapy and treatment.

While using cigarette taxes to fund the State Children's Health Insurance Program (SCHIP) may be appealing, its cost will almost certainly rise over time. Even worse, relying on cigarette taxes to fund such a crucial healthcare program makes government dependent on stable or increased smoking rates, for continued healthcare funding.

How governments use cigarette tax money determines whether they have a responsible relationship with the tobacco industry. To be responsible, the relationship must be in the best long-term interests of the public health, not the tobacco industry. Philip Morris long ago recognized the benefit of cigarette taxes that create government dependency on the industry, because they essentially turn government into a financial partner -- a relationship that strengthens the industry's future. Its 1987 strategic plan stated, "To the extent that governmental bodies tend to regard this [tobacco] tax as 'cash flow' there is a degree of reluctance to destroy the industry."

What are the arguments in favor of raising cigarette taxes?

There are many good reasons why government would want to increase tobacco taxes: reducing cigarette consumption, encouraging smokers to quit and discouraging teens from even trying cigarettes. In the longer term, if used correctly, cigarette taxes can help wind down and eventually eliminate nicotine addiction.

Once the misleading anti-tax arguments promoted decades ago by the tobacco industry's PR machine are discounted, the benefits are clear.

Perhaps the single, best argument, though, is that -- unlike taxes on food, gas or homes -- no one has to pay a cigarette tax, if they really don't want to.


Anne Landman is the editor of the TobaccoWiki collection on SourceWatch.

Comments

Cigarette companies are acutely aware that raising taxes effectively reduces cigarette consumption. According to Philip Morris' surveillance in California after the 1989 cigarette tax increase, raising cigarette taxes proved an extremely effective way to reduce overall cigarette consumption and promote quitting. Here's what PM found:

"Effective January 1, 1989, the California cigarette tax rate was increased from 10 cents per pack to 35 cents...Relative to smokers in other states, Californians reduced their cigarette consumption [and] increased their quit rates... Californians smoked fewer cigarettes per day in 1988 than others in the rest of the country and even fewer in 1989 than 1988. The difference in their consumption rates between the years is almost three times as large as the difference for the rest of the sample ... Californians also quit smoking more frequently than those in the rest of the country."

The seven-page document can be seen [http://legacy.library.ucsf.edu/tid/kvp83e00 here]

Anne Landman

Yes I really want to be like all other Americans!
Art and literature have been pretty effectively replaced by an obsessive focus on HEALTH. Magazines have replaced short stories and beautiful illustrations with BORING pages of exercises, articles on botox, face lifts, all to make the exterior
look good. No brain food there!
I am 70, very healthy, gifted with genetic probability to live into my 90's, independant, and a painter looking forward to catching up on all the creativity I missed out on while raising a family and needing to spend my time supporting myself.I really don' t wish to be stuck in some nursing facility being cared for by vapid, tatooed, pierced, celebrity watching, culturally deficient, young health care workers, who listen to that awful stuff that goes by the misnomer of "music'
I have already had to try to explain to my Mother, why she was unable to have a satisfactory conversation with them, as she found herself in this situation but at least she married 3 times, ( at sacrifice to her own development) so can afford the care. I can't !
I have tried quiting twice and found that my ficus for painting is really shot.......NOT HAPPENING, I did repetitous mindless physical activity, day after day trying to get past it....NEVER DID!
As an old lady, I demand the RiGHT to CHOOSE how I spend the rest of my days, being productively creative..and if they are shortened , so be it! The way the economy is going I could also starve to death or freeze to death!
Picasso lived to be 91, smoking and painting!

The federal government recently approved a tobacco tax increase of almost 62 cents per pack. When it goes into effect on April 1, it will bring the total federal tax on a pack of cigarettes to $1.00, to help fund the State Children's Health Insurance Program.

Children's Health Insurance Program sounds important. So...it seems to me that one should continue to smoke to fund this. The government wants money from smokers but also wants them to quit smoking.

In the longer term, if used correctly, cigarette taxes can help wind down and eventually eliminate nicotine addiction. Nicotine is additive yes, but it does not cause cancer. Cancer is caused by the tobacco, tar, 4000 chemicals etc.

I got fed up and said, "NO to big tobacco and the taxes that go with them". I smoked for the nicotine, yes it is a choice...my choice. I switched to Torch electronic cigarettes, a cleaner, safer and heathier alternative to tobacco cigarettes. Since there is no tobacco and nothing is ignited, it is not part of the Clean Air Act, and I puff anywhere I desire.
I am keeping money in MY pocket while I blow "simulated smoke-like vapor"
in the face of those non-smoking legislators. For me, Torch is the answer.

I believe e-cigarettes are not taxed like cigarettes, so smoking e-cigarettes will not help the SCHIP program. They are probably a safer way to get your nicotine, as you point out, since no combustion takes place. Nicotine isn't carcinogenic, but according to Philip Morris documents, nicotine apparently lowers people's threshold to [[Nicotine and ventricular fibrillation|ventricular fibrillation]], which can lead to sudden cardiac arrest.

Anne Landman

In September 1982, when I began smoking at the age of 22, cigarettes were $3.33 for a carton at AAFES. This morning I paid $8.24 for one single pack. It passed ridiculous a long time ago. It is now plain theft! I can poke holes in ALL your best arguments with the single statement: "I am an American". I am afforded inalienable rights by the constitution, including the right to the pursuit of happiness. Regardless of the results of your UNAMERICAN taxes, your methods should be illegal. Research the Boston Tea Party!! I HAVE to pay the taxes when I REALLY don't want to because I will not give up my RIGHT to smoke! YOU WILL NOT MAKE ME QUIT BY STEALING FROM ME!!!!!!!

that you might be stealing from yourself?

How about applying some good ol' American innovation to solve the problem?

Get yourself some tobacco seeds, grow your own, roll it up and smoke it. Voila!

Smoke all you want, with no more taxes, and no more reason to complain.

Plus, you'll get to see what real, pure tobacco tastes and feels like without the smootheners, sweeteners, burn accelerators, fillers, [http://www.sourcewatch.org/index.php?title=Insect_Complaint bug larvae], [[Mold complaints|mold]], and other types of [[Types of Foreign Matter Found in Consumer Complaints in 1989|foreign matter]] found in commercial cigarettes.

Best of luck,
Anne Landman

What makes you think that the government has any right to decide whether I smoke or not. It is none of your business what I do with my life. The benefits you list may be true but your point is moot. The government has absolutely no authority to determine whether people smoke or not. Moreover, what give you the right to make me pay for other peoples' health care? Is that the same make belief opinion that believes the government has any right to make sure people have health care? Whether someone has health care or not is not my problem.

This entire plan stinks of fascism, that is all it is. People like you who think you know what is best for everyone else and if we don't agree you are going to force it on us. What an jerk off response you wrote, telling someone to go grow his own tobacco. Where in the Constitution does it say I have to grow my own tobacco?

This complete lack of reality is why you end up with an idiotic argument like it provides money for children' health care and it will stop smoking. What kind of idiot can not realize that creating a program that is funded by taxing a something you want to stop will only create a program that is underfunded. Then again that is what fascist like you want, create a program that later must be paid for by the general population as no one would have accepted this SCHIP crap if they knew they had to pay for it.

It's clear you have never read the Constitution. Well maybe you have, your wrote down how you thought a perfect world would be run and then you called it the Constitution. In your world we are all ruled based on what you think is right. My opinion and freedom mean nothing if it does not jibe with yours. People like you have already made states like CA, NY and MI crap holes, now you want to spread that to the rest of the country. I can't wait to see how miserable the people of this country are in a few years. They deserve the government they got.

The government certainly does have the authority to determine whether people smoke or not, just as it has the authority to determine whether they are allowed to smoke marijuana, inject heroin or consume diet pills containing ephedra. You claim to know something about the Constitution, but clearly it is you who have no idea what is actually in it. The specific Constitutional provision which gives this authority to the federal government is Article I, Section 8, which gives Congress authority "to regulate commerce with foreign nations, and among the several states, and with the Indian tribes." This authority has been elaborated as federal law under Title 21, Chapter 9 of the United States Code, which specifies various rules regarding national drug control policy, food and product safety, controlled substances, etc.

As it happens, however, the government has not actually exercised its power to outlaw tobacco. Tobacco products are still legal, as you well know. They just cost more than you wish they cost, in part because Congress and the states have imposed taxes on tobacco products -- again, using powers that are expressly given to the government in the Constitution. If you don't think that power is in the Constitution, then either you haven't actually read the Constitution, or you don't know the meaning of plain English.

You're certainly entitled to think that taxes on cigarettes are too high (just as I'm entitled to think that they're still too low). You're even entitled to be angry and to use rude language like "fascist," "idiot" and "jerk off" when expressing your anger. I support your right to express your opinions, even when I disagree with them and even when you use this kind of rude language. However, it's nonsense for you to pretend that state and federal governments lacks authority under the Constitution to impose the taxes which they have imposed. If you don't like the laws that have been passed, you can try to elect politicians who will write different laws. That would get you further than you're going to get by making up falsehoods about the Constitution.

Or, you could try following Anne's suggestion and simply grow your own tobacco, in which case you don't even have to worry at all about what the politicians do. See how much freedom you have?

Here we go again. Another tax. The government is again raisin the tax on cigarettes. I am a smoker and have gone to roll my own because of the prize of a pack of cigarettes. Now that will also go up. That leaves me no other choice but to quit. All you non-smokers win. There are not many of us smokers left. You have pushed us out.
I remember reading somewhere that the government collects about $68 billion a year on taxes from us poor smokers. That is a lot of money. If everyone quits smoking what will they tax next? You know that the government needs money. I hope all you non-smokers are happy. That is only till they go after something that you like.
They say that they are doing this for our own good. That we will be healthier and live a better and longer life. I don't believe that for a minute. The government just wants more money. I know someone that works for a research company looking for a way to cure cancer. Well they found it about 17 years ago, but the government won't let them use it because people will live longer and it will be a burden on them. This being so I can tell you that they are not looking out for our health. They just want the money.
I can tell you so much more about our government that will scare you but right now I'm mad as hell and this is really about cigarette taxes.

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