Proposition 56 (The California Healthcare, Research and Prevention Tobacco Tax Act of 2016) proposes to amend the state constitution to increase current state excise tax on cigarette sales by $2 a pack with equivalent increases on other tobacco products.
And, for the first time, electronic cigarette products containing nicotine would be classified as “other tobacco products” and subject to state excise tax. Estimated revenues of from $1 billion to $1.4 billion in 2017-18 would be used primarily to augment health care for low-income Californians, and for smoking prevention and treatment programs.
The tax-per-pack of cigarettes will increase from the current level of 87 cents to $2.87 per pack. The tax on other cigarette products — cigars, chewing tobacco and other products “made of or containing at least 50-percent tobacco” — would increase from the current level of $1.37 to $3.37.
Electronic cigarettes, battery-operated nicotine devices that turn specially designed and flavored liquids into a vapor are the fastest growing segment of the nicotine industry in California, especially among youths and young adults. Themes such as Barbie, Minions and Tinker Bell, and flavors like cotton candy and bubble gum are aimed at attracting new young consumers.
Cigarettes and other tobacco products are currently subject to federal and state excise taxes, as well as state and local sales taxes. Should Prop 56 pass, electronic cigarette products, which are currently subject to only state and local sales tax, would now also be subject to federal and state excise tax. Just as with “other tobacco products,” electronic cigarettes would be taxed at $3.37 per-unit sale.
California has one of the lowest smoking rates in the country, estimated by the Department of Public Health to be 12 percent of adults, down from 24 percent in 1988. But use of e-cigarettes has doubled from 2 percent in 2012 to 4 percent in 2013.
Proponents argue that smoking and smoking-related illnesses incur health-care costs of $13.29 billion annually, $3.58 billion of which is being paid annually by California taxpayers. Proponents believe increased taxes will help reduce the number of smokers in California, inhibit the rapid growth of e-cigarette sales, and begin to drive down health-care costs for smoking-related medical and dental illnesses.
To date, more than $50 million has been spent in support of and in opposition to this initiative. Opponents, primarily big tobacco companies Phillip Morris and R.J. Reynolds, have spent $35,588,850 to “Stop the Special Interest Tax Grab,” as they call it.
Supporters, including “Yes on 56,” a coalition of doctors, dentists, health plans, labor, hospitals and nonprofit health advocate organizations, have spent $16,381,890 to back this constitutional amendment. The text of the initiative states: “An increase in the tobacco tax is an appropriate way to decrease tobacco use and mitigate the costs of health-care treatment and improve existing programs providing for quality health care and access to health-care services for families and children.”
Opponents argue that passage of this initiative would fund insurance companies and special interests more than it would fund treatment for smoking-related illnesses and youth smoking prevention.
The non-partisan California Legislative Analyst’s office summarized how revenue from the new tobacco and e-cigarette tax would be spent: Revenues would be deposited into a new special fund to be used only for purposes set forth in the initiative; and revenues from the e-cigarette excise tax would be directed to tobacco education and health services, and early childhood development programs.
Revenues would first be used to replace tax-revenue losses caused by lower consumption of tobacco products. Next, the state Board of Equalization would receive up to 5 percent of the remaining funds to pay for administrative costs to administer the measure. Then, specific state entities would receive fixed annual amounts: for enforcement of tobacco-related laws, $48 million; physician training to increase number of primary care and emergency physicians, $40 million; tobacco education, $30 million; and audits of agencies receiving funds from the measure, $400,000.)
The LAO states, “After covering revenue losses resulting from the measure, the revenue available for specific activities funded by the measure — mostly health programs — would be between $1 billion and $1.4 billion in 2017-18. If cigarette use continues to decline, these amounts would be somewhat less in future years.”
Supporters of Prop 56 include the American Cancer Society; California Medical, Dental and Hospital associations; California Labor Federation; California School Board Association; NAACP-California; Children’s Defense Fund-California; and the California and Los Angeles County Democratic Party.
Opponents are Phillip Morris USA Inc. and the R.J. Reynolds Tobacco Company.
To read the LAO analysis, visit www.lao.ca.gov/ballotanalysis and see “proposition analyses” on the left of that web page.