JUNE 10, 2010

Ethics of Tobacco Advisory Committee Goes Up in Smoke

Several groups have requested investigation of, or filed ethics complaints against, members of the FDA's new Tobacco Products Scientific Advisory Committee (TPSAC). Identified in March 2010, the TPSAC's twelve members will decide whether even more restrictions should be leveled against tobacco companies to "protect children" and advance the Family Smoking Prevention and Tobacco Control Act.

Facing a partisan lose-lose decision about tobacco products last year, Congress passed the buck to the FDA, giving it the power to regulate tobacco. The FDA's committee is now being questioned, though its members do not have ties to tobacco companies, an alliance prohibited by the organizing document. However, Citizens for Responsibility and Ethics in Washington (CREW) and Americans for Limited Government (ALG), and even Altria, have filed ethics complaints because some of the members have ties to pharmaceutical companies that provide quitting aids to smokers.

The producer of Nicorette gum, GlaxoSmithKline is one of the companies poised to profit from more regulations placed on tobacco. The New York Times quotes Dr. Benowitz,

I really don't see any conflict. My involvement with pharmaceutical companies is aimed at reducing the risk of smoking, quitting smoking. The aim of the committee is also to reduce the adverse health consequences of tobacco use.

Despite the evidence in violation of conflict of interest laws, the FDA has denied Altria's request to investigate these and other members of the board. The TPSAC is meeting this week to discuss the ingredients in tobacco products, presumably centering on the hotly debated inclusion of menthol in cigarettes.

The Commonwealth Foundation has researched other recent attacks on the expanding tobacco industry, including proposed tobacco taxes.

posted by LEAH ACHOR | 03:23 PM | 1 comment

JUNE 10, 2010

Tobacco Tax Fact Check (Part Two)

This is the second half of a two part blog, fact checking tmyths about tobacco taxes.  This blog focuses on what the some call a good tax model - taxing tobacco products based on the wholesale price:

One reason why basing the [smokeless tobacco] tax on wholesale prices is the standard in so many states is that the amount of revenue collected increases if prices go up.

To begin, taxing smokeless tobacco products because it may harm the consenting adult, who engages in it, is not sound logic for a tax. As the Tax Foundation explains, the role of government is not to prevent individuals from harming themselves (e.g. stop us from consuming soda, salt, fatty foods, etc.), but from harming one another.

An industry should only have a "special" tax on it if it is determined the product imposes significant costs on third parties. External health costs, such as second-hand smoking, is often cited as a reason (though a controversial one) for a tax on cigarettes. However, third parties are not affected with smokeless tobacco products.

But for the sake of discussion, let's accept the argument that an external cost is the message chewing tobacco sends to children. This brings us back to why tobacco should not be taxed on the wholesale price as the prices has nothing to do with the external costs the product imposes on society.

As the Tax Foundation makes clear:

The harm caused by a unit of tobacco is essentially unrelated to its price. A $5 pack of cigarettes would not impose any costs to society or harm any individuals more than a $2 pack of cigarettes would. With respect to cigarettes, most tax-levying officials have properly understood this because every state imposes the tax based on the number of cigarettes, not based upon the sale price.

When a tobacco tax is imposed as the one proposed, it is to create a new revenue source for lawmakers at a higher cost to residents. Legislators should not be unfairly and arbitrarily leveling taxes on any industries.

posted by KATRINA CURRIE | 10:55 AM | 0 comment

MAY 28, 2010

Tobacco Tax Fact Check

The misinformation that comes out of the Policy and Budget Center (PBC) amazes me. Here is the first post of a two-part fact-checking on taxing smokeless tobacco products and cigars. PBC states:

Pennsylvania is one of only two states to exempt cigars from taxation...Pennsylvania's failure to tax tobacco products other than cigarettes is...in effect a subsidy for the tobacco industry.

It would appear that PBC is not familiar with the definitions of a subsidy (or a "tax break," for that matter). All tobacco products are subject to the states 6% sales tax; no exemptions. Smokeless tobacco products and cigars do not have a special tax aimed directly at them; however, simply not imposing an excise tax no other product is subject to is not the same as offering a subsidy.

Tobacco production in Pennsylvania peaked in 1918 and has been declining for almost a century. Over that time, the number of acres devoted to tobacco farming has declined by 83%, and annual production is down by 74%. Of the 63,000 farms in Pennsylvania, 1,150 grow tobacco - fewer than 2% of farms in the state.

The idea that a tax is okay because only a few farmers will be harmed is the tyranny of the majority our founder feard. There are 1,151 tobacco farms in the state; the majority of these farms are less than 7 acres  because small tobacco farmers, many of whom are Amish or Mennonite, grow tobacco as supplementary income to cover annual real estate taxes and to keep their farms in production. The effects this tax will have on them are significant and should not be overlooked.

Further, many crops used less acres in 2009 than in 1918. Acres for harvesting oat crops decreased by 93% and wheat by 86%. During that same period, the value of production for tobacco in Pennsylvania increased 137% to $31,239,000 in 2010.  According to Census data, Pennsylvania is the only tobacco farming state that gained farms from 2002 to 2007.

Finally, a tax on tobacco products hurts not only farmers, but tobacco retailers, many of whom set up shop in Pennsylvania because of the lack of a tax.  With unemployment at a 25-year high, the 1,600 wholesales jobs tobacco products employee are significant. If Cigars International, with 150 employees, moves to Florida (there's no cigar tax there either), it will certainly have a ripple effect. 

Lawmakers should not discount the jobs Pennsylvania could lose if this tobacco tax is imposed.

Read more on the Pennsylvania State Budget and other tax proposals.

posted by KATRINA CURRIE | 00:52 PM | 4 comments

APRIL 26, 2010

Numbers Guy: Effects of Smokeless Tobacco Products Overblown

The Wall Street Journal's "Numbers Guy" takes a look at the effects of smokeless tobacco.  Many supporters of a tobacco tax use the argument that it would provide public health benefits (though of course, the real motive is to fund ever increasing government spending), but the Numbers Guy notes most of these statistics are overblown:

Add up all the risks of smokeless tobacco, say supporters of its role in smoking prevention, and using smokeless products raises the risk of premature death by only 2% of the amount that taking up smoking does, according to Joel Nitzkin, chair of the tobacco control task force of the American Association of Public Health Physicians, an organization of about 200 public-health doctors.

posted by NATHAN BENEFIELD | 08:23 AM | 0 comment

MARCH 19, 2010

Maryland Smokers Border-Hopping to Avoid Cigarette Tax

According to a recent op-ed by Marc Kilmer of the Maryland Public Policy Institute, a 2007 cigarette tax is having an adverse effect on the Free State's economy. While public health advocates have lauded the move as an effective way to deter smoking, Maryland smokers simply starting buying their cigarettes in neighboring states that have a lower tax rate, including Pennsylvania.

Looking at neighboring states' cigarette sales, it seems that at least part of the drop-off in Maryland cigarette sales is due to Marylanders buying cigarettes in those states. Pennsylvania, for instance, had been seeing a steady decline in cigarette sales since 2002. In 2008, though, as Maryland cigarette sales were falling, Pennsylvania sales increased by more than 7 million packs. Cigarette sales in the District of Columbia and West Virginia also increased from 2007 to 2008.

Check out Budget Facts 2009: Cigarette Taxes for more.

posted by MICHAEL NEROZZI | 00:16 PM | 0 comment

FEBRUARY 22, 2010

How Rendell's Cigar Tax Will Hurt Pennsylvania Businesses

For the second year in a row, Gov. Rendell has proposed a tax on cigars and smokeless tobacco, assuming this will have no impact on jobs or the economy.  (As I pointed out last year, Rendell's logic seems to be that taxes on businesses only hurt the economy when they are imposed on his friends, like Hollywood filmakers).

The blog "Stogie Guys" points out that online cigar retailers, which have set up shop in Pennsylvania, may choose to move.

A disproportionate number of online cigar wholesalers call Pennsylvania home, including Famous Smoke Shop, Cigars International, and Holt’s. This isn’t a coincidence. Along with Florida, the Keystone State is the only one without a cigar tax. But Pennsylvania Gov. Ed Rendell (pictured) recently proposed a budget that includes new excise taxes on cigars and smokeless tobacco. When a similar tax was proposed last year, Keith Meier, CEO of Cigars International, said his $90 million company with 150 employees might “swim to sunnier shores, such as Florida” if adopted.

posted by NATHAN BENEFIELD | 08:45 AM | 0 comment

SEPTEMBER 15, 2009

Smoking Ban Puts Damper on PA Taverns

A recent article in the Pittsburgh Post-Gazette highlights the burden the statewide smoking ban has on Pennsylvania bars and taverns.

According to the Pennsylvania Tavern Association, there were over 16,000 taverns in the state six years ago, with that number standing currently at 12,500, due in large part to the smoking ban. In accordance with the Clean Indoor Air Act, an establishment can only be exempt from the ban if it's total food sales make up less than 20% of its profit. The only other viable alternative is for the business owners to wall off the restaurant from the bar, a job often costing over $100k. Disastrous economic effects have been seen before in states with similar laws, as we highlighted in a our policy points on smoking bans:

• Four years after a smoking ban was implemented in California, 59.3% of establishments reported a decline in sales averaging over 26%. Nearly 30% of these businesses reported laying off workers or cutting back on hours.
• In New York, the smoking ban costs businesses over $37 million a year, often making these establishments no longer profitable.

Not only are the ill-effects of a government mandated smoking ban well documented in these cases, but evidence illustrating the health effects of second-hand smoke is cloudy as well. In 2007, The New England Journal of Medicine estimated an individual would need to spend 4,000 hours in a smoke filled room to inhale the amount of smoke in one cigarette. Given the devastating effect bans have had business in addition to conflicting science the health risks, it seems The Clear Indoor Air Act is going up in smoke...

posted by MICHAEL NEROZZI | 01:04 PM | 1 comment

APRIL 7, 2009

Federal Cigarette Tax Increase will Reduce PA Tax Collections by $140 Million

A new report from the Tax Foundation looks at the cost of the recent federal tax hike on cigarettes, an increase of 39 cents to $1.01 per pack, state by state.   The analysis finds that Pennsylvania smokers will pay $272 million in additional taxes.  However, because of a decline in cigarette sales from the higher tax (or rather, a decline in reported, taxed cigarette sales), the state will lose $140 million in revenue. 

This at the same time Governor Rendell is proposing a state cigarette tax hike of his own, to help fill the budget gap.  Even without a tax rate increase, revenue from the state cigarette tax has been declining - from $856 million in 2003-04 to an estimated $782 million in 2008-09.

This on the heals of a state report that state lottery revenues have been stagnant over the past few years, and counties with a slots casino have seen lottery sales decline - a trend likely to be problematic as additional casinos open.  And as mentioned previously, it is still unclear whether the slots revenue will be enough to provide property tax "relief" this year at all.

All in all, it doesn't look like taxing the vices of (mostly poor) Pennsylvanians is paying off.

posted by NATHAN BENEFIELD | 03:25 PM | 0 comment

DECEMBER 17, 2008

Smoking ban is bad for business, say casinos

Pennsylvania's slots casinos are complaining that the recently enacted state smoking ban is hurting their revenues (we told you so) and are asking that their exemption be increased from 25% to 50% of the casino floor.  Since about half of slots revenue goes to the state in taxes, they will likely get their exemption.

Meanwhile, John Goodman points to a New York Times article that anti-smoking "scare tactics" actually encourage smoking (I believe the scientific term is "reverse psychology"). 

Thus, when State Senator Stewart Greenleaf announces he is going to crack down on "loopholes" in the smoking ban using rhetoric like "It is estimated that over 53,000 non-smokers die each year due to exposure" (which is a completely fabricated statistic, generated by people who profit from suing tobacco companies) it makes cigarettes sound delightful to millions of teenagers.

posted by NATHAN BENEFIELD | 01:21 PM | 0 comment