Opposition Group Arises for Tobacco Tax

A group announced their opposition for the tobacco tax being promoted by citizens and coalition of anti-smoking interests yesterday. Americans for Prosperity came out against the measure as being a Government Slush Fund. From the Argus Leader:
The free-market grass roots group called Americans for Prosperity announced plans Tuesday to campaign against the tax, which is going before voters in November.

However, creators of the proposed tax argue that the tax will help get people to stop smoking and pay for programs that will keep kids and others from using tobacco products.

and...

Duane Sands, state director of Americans for Prosperity, held a news conference at Munchies, 10th Street and Minnesota Avenue, voicing concerns about the proposed tax.

Sands said it is wrong to impose a new $40 million tax to raise $5 million for a program.

"Why the first $30 million is going to the general fund and why the first money wouldn't go to the prevention program ... that makes no sense to me," Sands said.

Proponents of the bill note that the state has been receiving $30 million for the current tobacco tax, but that there isn't enough left over to properly pay for tobacco prevention programs.

"Taxing tobacco in South Dakota is not something new," said Jennifer Stalley, director of government relations for the American Cancer Society. "What we're proposing is taxing it at a rate that would get people to quit."

The American Cancer Society is one of the groups that helped create the proposed tax.

"Our absolute priority is increasing the price of tobacco to reduce the use of tobacco," Stalley said. "We know that is the most effective way to do that."
Read it all here. And by way of disclaimer, "Yes on 2" is an advertiser. (Although if No on 2 wants to buy an ad as well, I'm sure I can find them some real estate on the website.)

Comments

Jake Mortenson said…
The only legitimate argument I can see in favor of the tobacco tax is the possible costs imposed on taxpayers by smokers via Medicaid. However, some of those costs may be offset by decreased payments from Social Security and Medicare later in life (since smokers die younger).

Demand for cigarettes is very inelastic. Even an increase of $1 will not "get people to quit" to the extent the proponents imply. Education is a good option, but if we already raise $30 mil in cigarette excise tax revenue, how are prevention programs underfunded?

The cigarette excise tax is truly a case of a substantial majority taxing a minority. To make matters more just, the minority being taxed is poorer than the majority doing the taxing.

Further, the main argument by proponents in the form of "I know what's better for you than you do" is wildly arrogant. People have the right to do with their own bodies what they please, so long as they are not hurting others. Neither the government of South Dakota nor its citizens owns the body of an individual.
lexrex said…
jake, you said "People have the right to do with their own bodies what they please, so long as they are not hurting others."

that's not necessarily true. the law is there to protect everyone's health, safety, and welfare, including our own.

but i think the issue really centers around second-hand smoke and its possible ill-effects on others. i know it affects my asthma and allergies, though i enjoy an ocassional stogie.

if it truly is harmful, then the government has every authority to regulate it. just as it regulates other health and safety issues in restaurants, bars, and workplaces.

that being said, i think it's wrong to use the tax code for social engineering. if smoking is truly harmful, then regulate it. don't tax it. and if you gotta tax it, use it to pay only the health care costs, as mr. sands suggests.
Anonymous said…
Duane Sand is a true american patriot! Watch out of this guy. He will be the next congressman from North Dakota in 2008.
Steve Smith said…
Initiative 2/Tobacco Tax increase is a bad idea. It is bad fiscal policy. The tobacco tax would put $30 million into the state general fund before any money would go toward additional funding for an anti smoking program that already exists and is funded. If the tax doesn't raise over $30 million then the $5 million dollar program that would be created wouln't get a dime anyway. If the program really needs more money then why isn't more funding provided outright in the budget.
Jake Mortenson said…
lexrex,

I guess I should have said that I think the government SHOULD NOT be able to assume it owns the bodies of citizens. I realize this doesn't mesh well the nannyist, paternalistic role you think government should play when you said: "the law is there to protect everyone's health, safety, and welfare, including our own."

There is a negative correlation between "government provided safety" and freedom. Government should enforce property rights (including your body) and act as an arbitrator. After that, it should leave citizens alone.
Anonymous said…
The proponents of this measure are trying to pass it off as a "user fee." What a crock that is. Like one of the commenters said, the first $30 mil goes into the general fund. If it was truly a user fee, ALL the revenue from this proposed tax would go toward the costs associated with smoking.

lexrex raises another valid criticism: this is an attempt at social engineering through tax policy.

Vote NO on this piece of garbage.

And no, I'm not a smoker.
Anonymous said…
Wow, where to start....

How can "relatively" intelligent people get so confused over a simple policy proposal.

Let me set the record straight on a few things to help you guy's...

Price increases are by far the most effective way to get people - especially teenagers - to never start using tobacco or to quit if they are currently users. This is not a theory, it's been proven in every state that has increased tobacco taxes. Even the educated opponents of this measure don't dispute this fact.

The mission of groups like the American Heart Association & American Cancer Society (among others) is to improve people's health and save lives. If you oppose accomplishing those 2 things, then vote no.

The first $30M goes to the state's general fund because that's what the state has been receiving annually from the existing tax. The real issue is where the ADDITIONAL revenue goes - the very first $5M to DOH tobacco prevention and education programs; then the rest to education, health care, and property tax relief.

Speaking of relief for taxpayers, don't you agree it's wrong that tobacco users got sick and cost ALL taxpayers $53M last year via Medicaid? Meanwhile, all tobacco taxes combined only generated less than $30M. That leaves the rest of the non-tobacco population (80%) to pick up this enormous tab.

It's no longer a personal rights issue if you use tobacco products and get sick, then expect the rest of us to pick up the tab. Now it's my business.

This initiative is about preventing kids from starting to smoke and chew, it helps adults quit so they can spend their money in other ways, it saves lives, and it provides for taxpayer justice....are you guy's opposed to these things?
Anonymous said…
Jake, the only argument you can come up with in favor is the cost to Medicaid? Come on, instead of just spouting off your beliefs as facts do a little digging. The CDC and the tobacco companies themselves have said that price is the number one way to get people quit and to keep kids from ever starting.

I carried one of the petitions and you would not believe how many smokers signed the petition. Every smoker at some point in their lives is looking for something to help them quit smoking.

And don't tell me using tobacco only affects the user. Every SD taxpayer on average is paying $580 a year for someone else's poor decision.
Anonymous said…
Initiative 2 is well intentioned but doesn't make sense fiscally. If approved the only neighboring state that would have higher taxes on cigarettes is Montana. South Dakota's taxes would be $1.53 a pack. There are many communities close to the border in South Dakota. Smokers will leave the state to buy cigarettes. South Dakota misses out on the tax revenue all together then.

Many gas stations sell cigarettes. Itis not impractical to think that people might fill up their gas tank with the money they save on cigarette taxes by going across state lines. The state then loses out on gas tax revenue. When local economies start to suffer so do the communities when job creation is stifled.

The state already get millions in Cigarette tax revenue now. Anti-smoking programs shouldn't be underfunded with that much money coming in.
Steve Smith said…
The money that the tobacco tax generates allocates the first $30 million to the general fund and then the next $5 million to anti-smoking programs. Additional money after that is earmarked to programs that will increase in spending over time due to inflation.

Smoking rates decline over time. Ever since the 1950s smoking rates have been declining. As smoking rates decline over time, cigarette tax revenue will decline over time as well.

This creates a structural deficit. tax revenue decreases over time and programs earmarked to recieve these funds increase in costs.

The State will either be forced to cut programs when it can't sustain the cost or increase taxes again. Taxes shouldn't be raised to feed spending appetites of the state.

Both are bad options. I'm voting Vote No
jake mortenson said…
anonymous 3:39,

"Price increases are by far the most effective way to get people - especially teenagers - to never start using tobacco or to quit if they are currently users. This is not a theory, it's been proven in every state that has increased tobacco taxes. Even the educated opponents of this measure don't dispute this fact."

You are right, an increase in price does reduce consumption. However, as I noted in my Original post, the demand for cigarettes is inelastic. A CDC study I will link to at the bottom suggests that the elasticity for caucasians (which make up 88% of the state's population) is -.14. In layman's terms, a 20% increase in price reduces consumption of cigarettes by 2.8%.

If you do not know what elasticity is, please do not try to use the price argument. You are misrepresenting the facts.

Speaking of misrepresenting facts: "The mission of groups like the American Heart Association & American Cancer Society (among others) is to improve people's health and save lives. If you oppose accomplishing those 2 things, then vote no."

Well, when you put it that way, I am definitely voting no, I love cancer! (sarcasm, sigh). You know what, I don't think anyone should sunbath because it gives you melanoma. I am going to put a tax on all sunbathing because it gives you cancer. If you don't support my tax, you are against "saving" people from cancer. Do you see how baseless your argument is?

"it provides for taxpayer justice"

Cigarette smokers are generally of a lower socio-economic status than non-smokers. Not to mention, they are a minority. So, I fail to see the justice in taxing a poorer minority such an exhorbiant amount.

And yes, I conceded the Medicaid argument right off of the bat. However, as I also noted, none of the studies take into account decreased Social Security and Medicare costs later in life because smokers die younger. So the figure is actually at least marginally lower.

Other Anon: "Come on, instead of just spouting off your beliefs as facts do a little digging."

Give me a break. Have you ever read a longitudinal economic study on the effects of cigarette excise taxes? Do you have any experience going into elementary schools and teaching kids about the dangers of smoking and doing drugs? Or did your fellow petitioners give you some propoganda to throw at people?

On the otherhand, as I mentioned, I do agree that the cost imposed on others via Medicaid and other government funded medical care are unfair.

And correct me if I'm wrong, but anon #1 said that smokers "cost ALL taxpayers $53M last year via Medicaid" and you said that "Every SD taxpayer on average is paying $580 a year for someone else's poor decision".

$53mil total burden/775000 residents of SD = $68 individual burden.

$580 individual burden x 775000 = $450M total burden

So, which one of you needs to clarify your cost estimate?

Here is the link to the CDC study:

http://www.cdc.gov/tobacco/research_data/spec_pop/mmwr798.pdf
Anonymous said…
What does smoking have to do with property tax?

That alone is enough to warrant a NO vote.
Anonymous said…
"You are right, an increase in price does reduce consumption. However, as I noted in my Original post, the demand for cigarettes is inelastic. A CDC study I will link to at the bottom suggests that the elasticity for caucasians (which make up 88% of the state's population) is -.14. In layman's terms, a 20% increase in price reduces consumption of cigarettes by 2.8%."

Everybody has their own math methods, but the reality is that studies in states that have increased tobacco taxes show a 7% decrease in consumpition for every 10% increase in price.

"Cigarette smokers are generally of a lower socio-economic status than non-smokers. Not to mention, they are a minority. So, I fail to see the justice in taxing a poorer minority such an exhorbiant amount."

This is a huge misconcpetion, and frankly, insulting to lower income people. Polling 17 months agon in SD showed that for every person who considered themselves a "regular tobacco user" that made less than $20,000 there was another who made more than $60,000. Clearly this shows you are not citing facts, your making most of your arguments based on emotion and assumptions.

"And yes, I conceded the Medicaid argument right off of the bat."

Thank you, but ofcourse you conceded this, because it's a fact.

"However, as I also noted, none of the studies take into account decreased Social Security and Medicare costs later in life because smokers die younger. So the figure is actually at least marginally lower."

Now you are comparing apples and oranges....first you don't cite an actual study that finds your argument to have basis, you just make more assumptions. Secondly, Medicaid is paid for in part by state taxpayers via the required federal match from the state's general fund; Medicare and Social Security are federal benefits that come out of federal government funds. No question your point has some merit, but again, don't confuse it with my assertion about what tobacco use costs state taxpayers directly.

"Give me a break. Have you ever read a longitudinal economic study on the effects of cigarette excise taxes? Do you have any experience going into elementary schools and teaching kids about the dangers of smoking and doing drugs? Or did your fellow petitioners give you some propoganda to throw at people?"

The answer to your first two questions is Yes and Yes.

"On the otherhand, as I mentioned, I do agree that the cost imposed on others via Medicaid and other government funded medical care are unfair."

Again, thank you.

"And correct me if I'm wrong, but anon #1 said that smokers "cost ALL taxpayers $53M last year via Medicaid" and you said that "Every SD taxpayer on average is paying $580 a year for someone else's poor decision".

$53mil total burden/775000 residents of SD = $68 individual burden.

$580 individual burden x 775000 = $450M total burden

So, which one of you needs to clarify your cost estimate?"

Neither....again, you seem like a bright person, but you need to give a little more thought before letting your fingers type.

The $53M Medicaid statistic comes straight from the state of South Dakota office of budget management. The $580 per individual number cited by another is one I'm familiar with as well - as that person stated (and you misinterpreted) it cost SD "taxpayers" not every SD resident as you indicated in your math ("775,000 residents"). Also, it takes into account what it costs SD taxpayers at every level of taxation - federal, state, and local.

As for the "crossing borders" issue raised by Steve Smith, this is the oldest scare tactic in the book used by opponents.

Again, let's look at the facts instead of mindless propoganda. Montana raised their tax by $1 in 2004, Minnesota raised their tax by $.75 this past year, ND and NEB have tobacco tax increase proposals on the table and polling shows strong support, and Iowa attempted to raise thier tax by $.75 but failed in a close vote by their legislature....it's just a matter of time. Wyoming is a border state with basically one major city (of the 8 or 9 largest cities in SD)and it has a lower tobacco tax, but tell me it makes any sense to drive 75 miles across that border with $3 gallon gas to save $1 on a pack of cigarettes?!

SD Dept. of Revenue studies show that 85% of all cigarette pack sales are "point of sale" purchases. In other words, 85% are purchased one pack at a time while getting gas, beer, pop, etc. Only an idiot would spend $3 in gas to drive 2 hours roundtrip to save $1 on a pack of cigarettes. It just doesn't happen except for the 1% who smoke a carton a day and have time to drive all day for cigarettes.

Alright Jake, Steve, others....what's your next baseless argument that I can debug?
Anonymous said…
You can start by telling us what smoking has to do with property tax...
Anonymous said…
"You can start by telling us what smoking has to do with property tax..."

Simple....it's a tax break for the non-tobacco using taxpayers who have been forced to pick up the multi-million dollar tab for years for the 20% of the population who chooses, in spite of blatant health warnings, to use tobacco.

Taxpayers deserve a break...are you opposed to a property tax cut?
Jake Mortenson said…
"Everybody has their own math methods, but the reality is that studies in states that have increased tobacco taxes show a 7% decrease in consumpition for every 10% increase in price."

First of all, this isn't Math, its Economics. Go read the study I linked to and some others. It is very telling that the strongest argument against your case is the one you dismiss the quickest.

Next, if you can find and link to a realistic study that indicates the elasticity for consumption of cigarettes by caucasians is -.70, I will concede the argument. All of the studies, including the study I LINKED to, indicate a much lower elasticity for caucasians (88.7% of the population) than the statistic you referenced.

"Clearly this shows you are not citing facts, your making most of your arguments based on emotion and assumptions."

First of all, you did not cite anything relating to the socioeconomic levels of smokers other than referencing a nameless study and saying two statistics from it. If you can actually provide some reference to the facts you are claiming, I will address your points. Until then, I am going to trust studies done by institutions such as the CDC: "During 1983--2002, adults with household incomes below the poverty level and those with less than some college education consistently had higher smoking prevalence."

You can read it here:

http://www.cdc.gov/mmwr/preview/mmwrhtml/mm5320a2.htm

And please, quit suggesting I am using emotion when making my arguments. I could say the same about you, but emotion and tone are very difficult to pickup on blogsite. All you are doing is lessening my respect for you.

"As for the "crossing borders" issue raised by Steve Smith, this is the oldest scare tactic in the book used by opponents."

Again, I don't know what else to say to you other than go and read some economic studies before you open your mouth. Here is a study on the cross-border effects of state cigarette taxes from the National Tax Journal:

http://ntj.tax.org/wwtax/ntjrec.nsf/175d710dffc186a385256a31007cb40f/d7af38c6ef8bf6d7852567ef0057a8c0/$FILE/v48n4573.pdf

It is probably the oldest "trick in the book" because economists have been studying it since the 60s and it has a legitimate effect.

Admittedly, in the middle of SD the effect is probably fairly small. But there is a black market even here in SD.

And no, I am not going to make some self-righteous comment about how much better my arguments are than yours at the bottom.
george said…
jake,
i your cdc links aren't working. i tried both and got nothing. however i was on the cdc site and found studies on the topic of the effect of the price change and i couldn't find a single study that rated the connection as low as -.14. the lowest i could find was -.21 and some as high as -.37. i'm not saying you didn't find -.14, but i'm just saying there are more than just the one study you found.

additionally, you 3rd link to the cross-border sales issue is a bit dated (dec. '95). the formulas used to determine when someone would cross the border for cigarettes is skewed since it relies on cheap forms of transportaion (subways as the very beginning of the article pointed out on the front page) and low costs of fuel. unless SD puts in some subways for those you like to smoke cheap i d/n really see this argument standing. although i agree there will be some who choose to do this.

as a sidenote, i just heard of a guy you buys his cigs online from russia since they are super cheap. but i wouldn't recommend this since i'm guessing russia isn't as strict as the fda. :)
Steve Smith said…
People can and do leave the state to buy cigarettes, it is not 75 miles to go and buy cigarettes as Anon 9:30 suggests. From Sioux Falls to Iowa is 15 minutes in a car, if you are in Yankton all you have to do is drive over the bridge downtown and you are in Nebraska. Dakota Dunes is in Iowa's backyard, Brookings is 20 miles away from the state border. People can leave the state, go to an Indian Reservation, military bases, or bootleg sales to aviod getting charged extra. This was the case in Michigan about 10 years ago. Anon 5:34 highlighted this problem too. When they increased cigarette taxes. Increasing SD's tobacco tax will be 7th highest in the nation.
http://www.taxadmin.org/FTA/rate/cigarett.html


Individuals choose to smoke across all income levels Anon 9:30, but this tax is regressive, it hurts working class individuals the most.
Jake Mortenson said…
George,

Try this one for the elasticity figure:

http://www.cdc.gov/mmwr/preview/mmwrhtml/00054047.htm#00003302.htm

I am getting the -.14 from the first line of statistics labled "White, non-hispanic" in Table 1.

In this study, it estimate the elasticity for all repsondents to be -.25. However, I looked specifically at the Caucasian response as our state is made up of 88.7% caucasians (and they did not have a study for Native Americans,which make up 8.6% of our population).

Still, I have seen nothing that suggests the -.7 the anonymous commenter referenced. Further, ( and I am not explaining this for your sake, obviously) the -.37 you reference as your high mark indicates only a 7.4% decrease in smoking given a 20% increase in the price of cigarettes.

Here is a link for the source on income levels and smoking prevalence:

http://www.cdc.gov/mmwr/preview/mmwrhtml/mm5320a2.htm

If those do not work, let me know and I can email you the studies.

And I defer my comments on the cross-border effect to Steve.
Jake Mortenson said…
add this to the end of the first link: "47.htm#00003302.htm"

and this to the second: "a2.htm"
Anonymous said…
Steve, did you not understand that 85% of tobacco sales are "point of purchase" sales? Do you mean to tell me all of my buddies will drive to Iowa to by a pack of smokes instead of purchasing it at the gas station? While there will always be hard core smokers who will try to cheat the system they don't represent the large portion of the tobacco using population.

Your comment about the reservations couldn't be more wrong. All the reservations have entered into tax compacts with the state of SD, they collect the tax for the state and the money is returned to them. Believe me, they want that money. I was also under the impression that only people with military ID's could purchase items on bases.
Steve Smith said…
Anon 2:49 - Right now there is no incentive to go to another state to buy cigarettes because there isn't a big price difference. The point made about point of purchase for cigarettes makes sense for the current levels of tax on cigarettes. South Dakota's current taxes on cigarettes are in the middle range of where our neighbors taxes are.

If the tax increase is improved there will be a sizable difference of 75 cents to a $1.20 differnce per pack between Sd and our neighbors. Iowa's taxes are $.36 a pack. South Dakota's taxes would be $1.53 if approved. That will change some people's buying habits if they can save that much money by driving an extra 10-15 minuets to get to a gas station on the other side of the border.

Instantly other states become more a more attractive option for buying cigarettes when you are close to the border if you can save 1 dollar for every pack bought.

That is how the free market works. Not everyone will go and do this, but enough will to make an impact. Studies on excise taxes reaffirm this point over and over.
Jake Mortenson said…
One final thing, and I WILL mention this again. If you do not have enough confidence in your arguments and ideas to list your name, maybe you shouldn't comment at all.

Hiding behind an anonymous nameplate instantly takes away from your argument.
Steve Smith said…
Well said Jake.

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