Both sides debate impact of cigarette tax increase

An anti-smoking group says a claim thatMissouri’s proposed tax increase on cigarettes could lead to a drop in revenue is false, but opponents of the increase say their study looks at sales tax revenue — not the tobacco tax increase but rather the resultant effects. Stan Cowan, a board member of Tobacco-Free Missouri, cites a national study by Campaign for Tobacco-Free Kids that shows all 16 states that raised per-pack cigarette taxes at least 50 cents between 2006 and 2009 experienced both a decline in pack sales and an increase in revenue.

The same study found states that do not increase cigarette taxes tend to lose revenue over time due to an overall drop in smoking rates. Those that increased taxes less than a quarter a pack saw no significant bump in revenue. “This isn’t theory,” Cowan told Missouri Watchdog. “This is hard numbers.” Voters will decide on Proposition B at the polls Nov. 6. The ballot measure would increase the state tax rate on most cigarette packs from 17 cents to 90 cents, or a 430 percent increase. The Missouri Petroleum Marketers and Convenience Store Association, the group leading the fight against the tax, commissioned a study by University of Missouri economics professor Joseph Haslag.

If the increase passes, the study predicts state and local sales taxes would drop by $67 million, because 157 million fewer packs of cigarettes would be sold. “I readily admit you will generate more tobacco tax revenue for the state,” said Ronald Leone, executive director of MPCA. “What Haslag did was look at the sales tax revenue. The MPCA says the tax increase would result in a drop of state and local sales taxes. “It should be noted Haslag was paid by MPCA to write this report,” Cowan said. He points to Secretary of State Robin Carnahan’sballot summary of Proposition B that estimates an additional $283 million to $423 million in annual tax revenue would result from the increase. Some cigarette rates will increase even more if the measure passes.

The amount the manufacturers of value brands such as Decade, Echo and Edgefield will pay to the state will rise from 17 cents to $1.469 per pack — a jump of slightly more than 760 percent — if Proposition B passes. This fact is touted on billboard ads by the MPCA across the state. “These tax increases are at the wholesale level, so consumers may see their costs at the retail level increase even more,” Leone told Watchdog. Lobbyists negotiated this higher rate in the legislation because smaller and newer tobacco companies did not participate in the landmark 1998 settlement between big cigarette manufacturers and state attorneys general that required the companies to pay into a fund to help cover the health-care costs of smoking-related diseases.

The nearly 57 cents difference in the increase for the value brands matches the amount big tobacco is paying per pack into the state fund as part of the 1998 deal. “We call it the allocable share issue,” Leone said. “They never took into account newer companies coming online and having a competitive advantage.” The measure will also increase the tax rate on “roll your own” loose tobacco from 10 percent to 35 percent and boost the tax on cigars and chew from 10 percent to 25 percent. Cowan takes issue with the MPCA calling Proposition B a 760-percent tax increase since that number only applies to the value brands.

The way the organization frames the issue is misleading, he says. “It’s a tax increase in addition to them paying their fair share into the settlement,” he said. Cowan, who formerly worked in the tobacco use prevention program at the Missouri Department of Health and Senior Services, notes that the billboards never use the word “tobacco” when referring to the tax increase. “If people see those signs and don’t see the word tobacco you’re going to deceive a lot of people into voting against it,” he said.