Missouri to vote on raising lowest tobacco taxes in the US

The Kansas City StarOctober 8, 2012 

— Missouri’s cigarette tax is the lowest in the nation, and that has some people doing a slow burn.

At 17 cents per pack, Missouri’s tax is nearly half as much as the next lowest and well below the $1.49 national average. In Kansas, the tax is 79 cents a pack.

All that could change on Nov. 6, however, when voters get another chance to decide whether to raise the tax to 90 cents per pack and make Missouri’s cigarette tax the 33rd highest in the country.

If it wins approval, Proposition B is projected to generate $283 million to $423 million a year in additional tobacco tax revenue, which would be directed to a fund aimed at K-12 schools, higher education and smoking cessation programs.

“Raising the tobacco tax is one of the most effective ways to reduce smoking rates and prevent our youth from ever starting,” said Misty Snodgrass, government relations director for the American Cancer Society. “It’s also a revenue win for our underfunded public schools and universities.”

But opponents argue Proposition B would hurt sales tax revenue for state and local government and drive business to neighboring states.

“This would put small businesses in Kansas City at a disadvantage, which is horrific public policy,” said Ron Leone, who is running the opposition’s campaign for the Missouri Petroleum Marketers & Convenience Store Association PAC.

Voters rejected tobacco tax hikes in 2002 and 2006. Both years, the nation’s biggest tobacco companies spent millions to oppose the increase. But this time around, those same companies have said they are sitting out the campaign.

“Big Tobacco is standing down this year because they support Proposition B. They support it because it reduces their competition,” Leone explained.

That’s because in addition to increasing taxes on tobacco products, Proposition B also would eliminate a pricing advantage that off-brand cigarette companies currently have in Missouri.

In 1998, Missouri was one of 46 states that entered into a legal agreement with cigarette makers forcing them to pay into a state fund to help cover the cost of smoking-related diseases. Companies that didn’t sign the agreement still pay into the fund, but through a loophole in the law get their money back at the end of each year.

Missouri is the only state that hasn’t closed the loophole.

“This ballot initiative eliminates a loophole in the law that has created an uneven playing field for cigarette manufacturers and retailers in Missouri,” said Bryan Hatchell, a spokesman for Reynolds American Inc., a major manufacturer of tobacco products. “Primarily for this reason, Reynolds American Inc. has no plans to oppose the Missouri ballot initiative.”

Leone said the passage of Proposition B would mean off-brand cigarettes could cost customers as much as 57 cents more per pack, in addition to the new increased tax.

“In one fell swoop, Big Tobacco can reduce or eliminate their competition,” Leone said.

Money for schools

Snodgrass said the decision to use the additional revenue generated by the proposed tax increase for public schools and higher education is a key difference from previous efforts and a big reason why supporters are so optimistic it will succeed this time.

“We know that Missourians support their local public schools,” she said.

If passed, the additional revenue would be put into the Health and Education Trust Fund, where 50 percent would go to K-12 schools, 30 percent to higher education and 20 percent to tobacco use prevention and quit assistance programs.

Supporters estimate that the higher tax could result in millions in additional funding for area school districts, including nearly $3 million for North Kansas City, $2.7 million for Lee’s Summit and $2.3 million for Kansas City.

Leone, however, questions whether the additional revenue will actually translate into higher funding levels. Lawmakers have a history of using new revenue streams to justify cuts in other state appropriations, he said.

“Even if this brought in $300 million for schools, it doesn’t guarantee the money that is currently appropriated for schools is going to stay there,” he said. “The budget is a big shell game, and what goes in the front door can just as easily go right out the back door.”

Snodgrass said proponents would be vigilant to ensure the additional revenue is spent in line with how voters intended.

“The coalition behind this initiative will be a constant presence in Jefferson City to remind legislators of the voters’ intent and ensure accountability for its implementation,” she said.

In addition to new revenue, Snodgrass said fewer Missourians smoking will also save the state millions of dollars a year. Medicaid costs associated with tobacco-related disease cost taxpayers $532 million annually, she said. Each pack of cigarettes sold in Missouri “costs our economy $12.68 in lost productivity and preventable health care expenses,” she added.

“The low tobacco tax in Missouri costs the state dearly in state tax dollars, in lost productivity, in preventable disease and in premature deaths.”

Impact on local business

Leone called the increased tax “outrageous and unfair.” The real impact of the 90-cent per pack tax would be loss of business, and ultimately jobs, at stores along the state’s borders.

“For some reason we’re embarrassed for being the lowest cigarette tax, even though that brings a tremendous amount of business into this state,” he said.

A study commissioned by Leone’s organization and performed by Joseph Haslag, an economist at the University of Missouri, found that, if estimates are correct, Proposition B would result in 157 million fewer packs of cigarettes sold in Missouri every year. That would mean the amount collected in sales and other state and local taxes would decrease by $67 million.

Haslag’s study predicts that would translate to $1.4 million in lost sales taxes for Kansas City and $824,000 for Jackson County.

“That’s why this isn’t just about smokers,” Leone said. “That’s why everyone has skin in this game. Our state and local governments are going to lose revenue if this measure passes.”

Snodgrass called that argument “fatally flawed” She said it presumes that with a decrease in smoking, none of the money currently spent on cigarettes will make its way back into the local economy and countered that tobacco use in the state costs an estimated $565 per household in public expenditures.

“They are trying to convince voters that Missouri’s economy is only competitive because we sell deadly, addictive products cheaper than our neighbors,” she said. “That’s just a false argument. The harm caused by tobacco products is currently subsidized by all Missourians.”

Leone said his organization is not opposed to any tax increase on tobacco. He said he spoke in favor of legislation that would have nearly doubled the tax to 33 cents per pack earlier this year, but the bill never gained traction.

“For anyone to say we’re against all tax increases is ridiculous,” he said. “We’re just against any tax increase that puts us at a competitive disadvantage with our neighboring states.”

Money game

The nation’s biggest tobacco companies may be sitting out the 2012 campaign, but off-brand cigarette companies are spending big in Missouri.

Two of those companies – Cheyenne International LLC of Grover, N.C., and Xcaliber International LTD LLC of Pryor, Okla. – have given more than $1 million combined to the opposition campaign this year.

Several convenience store chains, such as Dallas-based 7-Eleven Inc., also have chipped in to the opposition effort.

The American Cancer Society spent hundreds of thousands of dollars on the campaign just getting the measure on the ballot, and last week the organization chipped in another $1.7 million.

A poll released in August by the firm Public Policy Polling showed 47 percent of respondents in favor, 38 percent opposed and 14 percent undecided.

Both sides are optimistic about their chances.

“You’re always fighting an uphill battle when you’re fighting a sin tax,” Leone said. “Our job is to educate voters and pull back the curtain and understand all taxpayers have skin in the game. This is not simply a tax that someone else pays.”

Snodgrass said the campaign is gaining support every day as proponents travel the state to educate voters.

“Once voters see the benefits to their community, we’re going to be successful this November,” she said.

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