$2-Per-Pack Tobacco Tax Clears First of Legislative Hurdles

California lawmakers chose not to make smokers pay more for health insurance, but they may be more willing to make smokers pay more for cigarettes.

A new bill proposing to raise the tax on tobacco by $2 per pack of cigarettes cleared its first two committee votes last week in predictably partisan votes. SB 768, by Sen. Kevin de León (D-Los Angeles), would raise the price of cigarettes to more than $8 a pack and generate about $1.4 billion a year. De León proposes the money be used to offset costs of medical care for tobacco-related diseases, anti-tobacco education and smoking-cessation programs.

The Senate Governance and Finance Committee approved the bill in a 5-2 vote and the Senate Committee on Health approved it 6-2. All “yes” votes were Democrats. All “no” votes were Republican.

“Taxpayers pay $3.1 billion a year to subsidize this industry,” de León told the health committee, citing an estimate for California’s annual medical costs for tobacco-related diseases and health problems.

“On a fiscal level, the price is much too high, and taxpayers have been footing the bill for much too long,” de León said.

California, which hasn’t increased taxes on tobacco since 1998, now charges 87 cents on each pack of cigarettes and ranks 33rd in the country in tobacco taxation. De Leon’s bill would move the state into fourth place.

Michael Ong, an associate professor of medicine at UCLA School of Medicine who also conducts health economic research, told legislators the time was right for a hike in tobacco costs.

“Raising the tobacco tax will save lives and save money,” Ong said. “California has reached its lowest smoking rates — and that’s good. But researchers now predict overall smoking prevalence will increase every year.”

Raising the tobacco tax will keep smoking ratios low and save the state money — “a win-win for all Californians,” Ong said.

No Higher Premiums for Smokers

Earlier this year, California legislators debated and ultimately decided against allowing health insurers to charge smokers higher premiums than non-smokers. The Affordable Care Act includes provisions that give insurers the option to consider tobacco use when determining premium rates.

But not in California.

AB 1X2 — by Assembly member Richard Pan (D-Sacramento), one of two bills passed in special legislative session to align state laws with new federal laws — specifically prohibits insurers from considering tobacco use. It was signed into law last week by Gov. Jerry Brown (D).

Legislators decided that penalizing smokers with higher insurance premiums would be counterproductive. But charging smokers more to keep their habit may gain more favor — especially in a Legislature with a supermajority of Democrats.

Taxation legislation requires a two-thirds majority of both houses, a nearly insurmountable hurdle for years. But now, with Democrats filling more than two-thirds of the seats in the Assembly and Senate, tobacco tax supporters like their odds.

Supporters, Opponents Square Off in Familiar Battle

Following the long tradition of tobacco taxation in California, de León’s bill is backed by familiar supporters, including:

  • American Cancer Society;
  • American Heart Association;
  • American Lung Association;
  • Health Access California;
  • California Primary Care Association;
  • Service Employees International Union; and
  • More than one dozen other organizations.

“I served on the Prop. 99 committee, and Prop. 99 is still an important part of California’s health care system,” said Beth Capell of Health Access California.

“This bill follows in that tradition of funding for health care and tobacco cessation,” Capell said.

In 1988, California voters approved Proposition 99, which increased the tobacco tax by 25 cents a pack and devoted 20% of the money raised to fund a tobacco control program. It was considered a national watershed funding milestone, providing California with more than $100 million a year for tobacco education and research.

Opponents also are familiar.

Terry Flanigan of the long-established Sacramento Flanigan Law Firm representing Reynolds American, parent of R.J. Reynolds Tobacco Company, asked the Governance and Finance Committee to vote no.

“Reynolds opposes SB 768 for the same reason it opposed SB 600 two years ago. A $2 tax increase on top of state and federal taxes currently assessed in California would result in total per-pack tax burden of close to $5 — actually $4.93,” Flanigan said.

Flanigan also warned of increased smuggling and black market activity if cigarette prices are raised significantly.

Bill Dombrowski, president and CEO of the California Retailers Association, said tobacco taxes target low-income people.

“Cigarette taxes are regressive because they unfairly burden low-income earners,” Dombrowski said.

De León disagreed.

“What’s truly regressive is that a disproportionate number of smokers are lower income or from minority communities. In fact, low-income communities will benefit most from this bill,” de León said.

Other opponents include the California Distributors Association, California Taxpayers Association and the California Chamber of Commerce.

Tobacco Tax in Congress

A new tobacco tax is also on the national agenda. The Tobacco Tax and Enforcement Reform Act, introduced in the U.S. Senate last month by four Democratic senators would increase the federal excise tax on tobacco products and raise money to fund children’s health insurance programs and smoking cessation programs.

The bill, introduced by Frank Lautenberg (N.J.), Richard Durbin (Ill.), Tom Harkin (Iowa) and Richard Blumenthal (Conn.), would tax all tobacco products at the same rate and hike excise taxes by 93%. The bill also aims to crack down on tobacco trafficking and smuggling.

The federal legislation and de León’s California bill would not conflict. The price of cigarettes in California could go up by more than $2 a pack and state government might reap greater revenue if both pieces of legislation are enacted.

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