Taxing Tobacco Now a National Addiction
By Emily O’Donnell and Allison Thomasseau
It seems one of the few things the Legislature and Gov. Deval Patrick could agree on in the debate over the state’s 2014 fiscal year budget was the dollar-a-pack increase in the tobacco tax – the fifth time the tax has been increased since 1992.
Beacon Hill isn’t the only place where politicians agree on tobacco levies. Forty-seven states have raised cigarette taxes a combined 105 times since 2002. Only California, Missouri and North Dakota have avoided the temptation, according to the Campaign for Tobacco Free Kids.
Raising tobacco taxes is an easy political choice: there is little opposition and plenty of support. But as Massachusetts grows more dependent on tobacco revenues now approaching $1 billion a year, the use of a sin tax to balance the books raises questions about who pays, where the money goes and how long it will last.
“We have a budget shortfall, but it’s not fair that smokers should be required to plug up the hole,” said Michael Siegel, a Boston University community sciences professor who has studied the issue of smoking for years.
The fairness of cigarette taxes is often left out of the debate, but national studies indicate they are regressive. The poor and under educated have much higher smoking rates than those with higher incomes and college degrees. Those who have studied the science of tobacco addiction say more of the tax money should go to programs targeted for this group.
But the trend has moved in the other direction. Faced with budget gaps, a succession of Massachusetts governors and lawmakers has diverted tobacco tax revenue away from anti-smoking programs. Since 1994, funding of such programs has fallen by $48 million, according to the state health department.
The steady rise in the cost of cigarettes alone has helped reduce smoking rates, but that indirect success suggests tobacco taxes might not be a sustainable form of revenue – especially by 2025 when the state stops receiving some $250 million annually from a settlement with tobacco manufacturers.
“Tobacco taxes help balance the budget and drive down consumption, but it’s not necessarily a stable source of revenue,” said Andrew Bagley, research and policy director at the Massachusetts Taxpayers Foundation.
Massachusetts first turned to tobacco taxes in 1939 when it placed a nickel levy on a pack of cigarettes. Since then it has raised the tax 11 times. In the last two decades the increases have come faster and bigger.
A 1992 ballot initiative nearly doubled the cigarette tax from 26 cents to 51 cents. The levy went to 76 cents in 1996, $1.51 in 2001 and $2.51 in 2008.
This year the Legislature quickly accepted the plan first proposed by Gov. Patrick to increase the cigarette tax from $2.51 to $3.51 to raise a projected $165 million for improvements to the state’s transportation system.
The bump up would make the state’s cigarette tax the second highest in the country, below New York’s $4.35 and just above Rhode Island’s $3.50 per pack.
Tobacco revenue is not limited to taxes. Massachusetts has been getting around $250 million annually from a 1999 master settlement among the major tobacco companies and 46 states.
Including the latest proposed increase, the state would receive an estimated $980 million next year from tobacco taxes and the national settlement – a significant figure at a time when the state is still struggling with anemic sales and income tax revenues.
While there isn’t much debate about Big Tobacco paying for its past sins there are questions about how fair it is for smokers – who are poorer and less educated – to shoulder the cost of their “sins” – especially when their tax dollars aren’t used to help kick their habit.
According to the Centers for Disease Control and Prevention, the national smoking rate is about 19 percent among adults. In Massachusetts, that number is around 16 percent.
But a 2011 CDC study reported that 29 percent of people below the poverty level smoked, versus 17.9 percent above the poverty line. Education, which is strongly linked to income, is also a factor; 45 percent of GED earners smoke compared to just 5 percent of those with graduate degrees.
Darryl Kounter, a spokesman for CDC’s Office on Smoking and Health, says there are many theories about the disparity, including the possibility that children in higher income families don’t try cigarettes because they don’t see their parents or friends smoke.
“There are a lot of factors and I don’t know if anyone has tried to discern that definitively,” Kounter said.
Dr. Denise Jolicoeur, the program director for the Center for Tobacco Prevention and Control at UMass Medical School, thinks low-income smokers may lack the resources to quit, due, in part, to a decrease in funding for cessation programs.
Proponents of higher tobacco taxes say additional revenues are needed to fund anti-smoking programs. But more and more of the money has gone to the state’s general fund. Of the $815 million Massachusetts received from tobacco taxes and the big tobacco settlement this fiscal year, less than 1 percent, or $4.1 million, went to cessation programs.
“In Massachusetts, the Legislature took away much of the funding for cessation programs prior to 2001,” Jolicoeur said. “The impact has been a reduction in access to face-to-face counseling for smokers and a decrease in the amount of tobacco treatment specialists being trained.”
Scott Harshbarger, who was the Massachusetts attorney general who helped win the national tobacco settlement, calls the shift in funding “a great disappointment.”
“The litigation was designed to further the public policy that was already in this state,” he said. “It was designed to change the behavior of and reduce the use of tobacco by adults.”
Boston University’s Siegel says that by using the taxes to pay for the general cost of government or special funding for transportation infrastructure the government will need smokers to keep smoking.
“It really creates a perverse incentive where the government loses the motivation to take significant action to reduce cigarette consumption because we’re going to lose transportation funding,” he said.
To be sure, raising the cost of cigarettes does affect the rate of smoking. The Massachusetts Department of Revenue reported that when the state raised the tax in 2008, the number of packs purchased by adults dropped from 278 million to 225 million.
But the success of higher taxes in driving down smoking is a double-edged sword.
So far, rising tax rates have stayed ahead of declining smoking rates, but if taxes continue to increase the cost of cigarettes budget writers could see a decline in the revenue they have come to rely on, including the quarter billion dollars in annual Big Tobacco settlement payments that end in 12 years.
Michael Widmer of the Massachusetts Taxpayers Foundation says it could be dangerous to count on a future of steady tobacco tax revenues.
“There are two major caveats to keep in mind. One, Will we keep seeing a decline in smoking over the next decade? Two, Is there a breaking point where the tax is so high that it leads to a sharp reduction in smoking, and the state loses revenue?’” he said.
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