IP-9-2004 (September 2004)
Author: Linda Gorman

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Introduction

Proponents of the Tobacco Tax initiative claim that increasing taxes on tobacco products will improve health care for children, help smokers by making them quit, and help taxpayers by making smokers pay for the extra health care that their habit makes them consume. These claims are grossly misleading. At bottom, Amendment 35 is a reverse Robin Hood, an attempt to take money from the relatively poor for the benefit of the relatively rich who populate a handful of special interest groups. The Amendment frees spending by these groups from both TABOR and normal legislative oversight, requires that spending levels increase in a fashion reminiscent of Amendment 23, and gives them eternal control of the new tax revenues.

1.1 Amendment 35 will increase waste in anti-tobacco programs. Even though there a huge amount of waste at current levels of spending, Amendment 35 allocates almost $70 million in additional funds to antitobacco research and education. In one recent representative anti tobacco effort, anti-tobacco activists received $1 million in state money to write and publish a new book called the Berenstain Bears and the Sinister Smoke Ring in English and Spanish. It was distributed to every 4th grader in the state in hopes that it would “increase family interaction around anti-tobacco messages.” The project evaluation concluded that the book did nothing to change 4th grade attitudes about smoking. Colorado 4th graders, it turned out, hated cigarettes before they got the book. They also hated cigarettes after they got the book, even though most sensible families apparently threw it out without reading it, let alone interacting around its messages.

1.2 Amendment 35 will take from the relatively poor to give to the relatively rich. Voting more money for such wasteful programs is even more distasteful when one considers that the money funding the people who propose such things will primarily come from people with relatively lower incomes and education. Estimates for Colorado suggest that smokers make up 30 percent of people with less than a high school education. Average annual income for high school dropouts peaks at about $24,000. With the Amendment 35 increase, a pack a day smoker will end up paying about 1% of his income in additional taxes. Most of that money will be wasted on expanding health and anti-tobacco programs that provide nice salaries for those who run them and very few benefits for those who pay the taxes.

Tobacco tax advocates say that robbing the poor to pay the rich is justified because smokers burden taxpayers with higher health care costs. In fact, the consensus of the reputable studies of the costs that smokers impose on taxpayers is that at current tax levels smokers already pay more in taxes than they consume in public services.

1.3 Amendment 35 will increase youth access to tobacco by stimulating black markets. Because Amendment 35 increases state cigarette taxes by 320 percent, it gives smokers at all income levels an incentive to abandon high priced legal cigarettes for cheaper black market ones. Colorado law prohibits the sale of tobacco products to minors, a law that legal cigarette sellers have a good record of observing. People selling illegal cigarettes are disobeying the law already. As the markets for illegal drugs have shown, people in illegal markets have no qualms about selling their product to children. If Amendment 35 passes, there is a real possibility that children will find it easier to obtain tobacco products.

Displaying an astounding lack of common sense, tobacco tax advocates are steadfast in the denial of black market effects. Citizens for a Healthier Colorado, the most visible organization backing Amendment 35, says that “immediately after a substantial increase in the price of tobacco, there may be an initial effort by smokers to go across state borders to buy cigarettes. But those cross-border purchases generally fade as smokers go back to their usual habit of buying cigarettes.” The Campaign for Tobacco-Free Kids, a Robert Wood Johnson Foundation funded backer of Amendment 35 efforts, opines that smokers who stockpile to avoid cigarette tax increases soon “tire of driving across state border [sic] or going to the internet to buy cheaper cigarettes and return to the convenience of normal full-tax purchases in their own state.”1

One wonders just where they think that state is. Britain has the second highest cigarette taxes in the world. It is also an island, a fact that makes driving to other jurisdictions even more inconvenient than in the United States. Contrary to the predictions of tobacco tax advocates, the proportion of untaxed cigarettes consumed in the country has been rising along with its taxes. It is now approaching 30 percent, smuggling is big business, and armed robbers routinely hijack cigarette cargos.

In fact, illicit cigarette trafficking is a global business involving an estimated one third of worldwide cigarette exports. New York City has one of the highest cigarette taxes in the United States. Like Britain, it is awash in illegal cigarettes brought to smokers’ doorsteps by organized crime, terrorist groups, street gangs, and small bootleggers. Untaxed cigarettes can be ordered via the internet from foreign retailers and from Indian reservations located in the U.S. Retailers located outside of state and national jurisdictions have little incentive to monitor youth access tobacco. In one experiment, youths ordering over the internet were successful 90 percent of the time.

1.4 Amendment 35 will do little to stop smoking. Virtually all of the studies on the effect of higher prices on smoking behavior ignore the black market and thus overestimate the effects that higher prices have on smoking behavior. When prices go up, changes in retail tobacco sales are assumed to reflect reduced tobacco consumption. In fact, a number of smokers simply switch to illegal retailers. The few studies that try to take illegal sales into account have concluded that increasing cigarette taxes has a small effect on smoking behavior and virtually no effect on the number of young people who pick up the habit.

1.5 Amendment 35 will gives more money to federally subsidized health care providers already charging more than private physicians. Amendment 35 proponents also claim that taking funds from smokers will pay for medical care for the uninsured. In fact, most of the money will be directed to activities designed to increase state spending on Medicaid without increasing the Medicaid budget. An estimated $80 million is earmarked for increasing enrollment in programs that rely on Medicaid dollars to provide health care for real people. Funding enrollment increases does not
funding actual health care. An estimated $33 million will go to Section 330 Community Health Centers. Community Health Centers are federally subsidized clinics that charge more than cash paying patients pay for private office visits. Under federal law, Colorado Medicaid already has to pay them 5 times more than it pays private physicians for the same service.

None of these problems trouble the special interests funded by Amendment 35. At present, they are on an equal footing with other groups when they petition the Colorado legislature for funds. Amendment 35 would end this. To its credit, the Colorado General Assembly has historically resisted profligate spending on anti-tobacco programs and unreasonable Medicaid and CHIP expansions.

1.6 Amendment 35 will fund special interests Frustrated by the sensible caution of the Colorado legislature, Amendment 35’s authors are seeking to create a stream of tax revenue for their exclusive use that is not controlled by the General Assembly. Rather than going to the legislature, most of the money from the tobacco tax goes directly to select subdivisions of executive branch agencies like the Department of Public Health and the Department of Health Care Policy and Financing. Should they so desire, sympathetic staffers can frame program requirements so that specific agendas are met and the money is directed to specific interest groups.

Defenders of Amendment 35 argue that it is right and just to burden lower income smokers because they impose costs on other people through tax funded health programs. This is not the story that the same anti-tobacco proponents tell government officials when they want more money from the legislative. When budgets are on the line tobacco users are portrayed as helpless sufferers unable to pay for the high priced medical help needed to wrest themselves from the clutches of an addictive scourge more powerful than cocaine or heroin. As the flip-flop on smokers shows, at bottom Amendment 35 is a cynical exercise in taxing an unpopular minority for the benefit of politically powerful special interest groups. Those groups seek to use tax money to free their lobbying efforts both from legislative oversight and the necessity of constantly seeking donated funds. If they succeed, other unpopular minorities should expect similar treatment.