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Proposition 56 – Cigarette Tax

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Official Title:

Tax Extension to Fund Education and Healthcare. Initiative Constitutional Amendment.  (Read How is the California Constitution Amended?)

Overview:

Tobacco products are subject to state and federal excise taxes, and state and local sales and use taxes.

Current state law imposes excise taxes on the distribution of cigarettes and other tobacco products, such as cigars and chewing tobacco.  Tobacco excise taxes are paid by distributors who supply cigarettes and other tobacco products to retail stores.  These taxes are typically passed on to consumers as higher prices on cigarettes and other tobacco products. The state’s cigarette excise tax is currently 87 cents per pack

The federal government imposes an excise tax on cigarettes and other tobacco products.  In 2009, this tax was increased by 62 cents per pack (to a total of $1.01 per pack) to help fund the Children’s Health Insurance Program, which provides subsidized health insurance coverage to children in low-income families.

Sales of cigarettes, other tobacco products, and electronic cigarettes are subject to state and local sales and use taxes.  These taxes are imposed on the retail price of a product, which includes excise taxes that have generally been passed along from distributors.  The average retail price of a pack of cigarettes in California currently is close to $6.  Roughly $400 million in annual revenue from sales and use taxes on cigarettes and other tobacco products go to the state and local governments.

Proposition 56 would increase—effective April 1, 2017—the existing state excise tax on cigarettes by $2 per pack.  As a result, the total state excise tax, would be $2.87 per pack.  Proposition 56 also creates a one-time “floor tax” on cigarettes that are stored by businesses at the time the new excise tax is levied.

Any increase in cigarette taxes automatically triggers an equivalent increase in excise taxes on other tobacco products.  As a result, the $2 per pack cigarette tax increase would lead to an equivalent increase in the tax rate on other tobacco products, which is currently equivalent to a $1.37 per pack tax on cigarettes.  The new tax rate on other tobacco products would be equivalent to a $3.37 per pack tax on cigarettes.

Proposition 56 also applies the tobacco products excise tax to electronic cigarettes that contain nicotine or are sold with liquid containing nicotine (“e-cigarettes”).  As with other tobacco products, the tax rate would be equivalent to $3.37 per pack of cigarettes.

Revenues from the cigarette, other tobacco product, and e-cigarette excise taxes that are increased by Proposition 56 would be deposited directly into a new special fund, called the California Healthcare, Research and Prevention Tobacco Tax Act of 2016 Fund.  These revenues would be allocated to increase funding for existing healthcare programs, tobacco use prevention/control programs, tobacco-related disease research and law enforcement, University of California physician training, dental disease prevention programs, and administration.

In 2012, Proposition 29 was on the June 5 presidential primary ballot and would have increased taxes on cigarettes by $1.00 per pack.  The additional tax revenue would have been used to fund cancer research, smoking reduction programs, and tobacco law enforcement.  Proposition 29 was narrowly defeated, 50.2 percent to 49.8 percent.

Fiscal Impact:

According to the Legislative Analyst Office (LAO), Proposition 56 would result in a net increase in excise tax revenues in the range of $1.1 billion to $1.6 billion annually by 2017-18, with revenues decreasing slightly in subsequent years. The majority of funds would be used for payments to health care providers. The remaining funds would be used for a variety of specified purposes, including tobacco-related prevention and cessation programs, law enforcement programs, medical research on tobacco-related diseases, and early childhood development programs.

CCC Position:

No position

Support:

Supporters of Proposition 56 include the American Heart Association, the American Lung Association, and the American Cancer Society Cancer Action Network.

Supporters state that tobacco is the number one cause of preventable death, killing 40,000 Californians annually, and that annual tobacco-related healthcare expenses cost California taxpayers $3.58 billion.  This measure works like a user fee in that only people who use tobacco products will pay the tax, which will be used to fund already existing programs to prevent smoking, improve healthcare, and research cures for cancer and tobacco-related diseases.  Supporters also believe that Proposition 56 will fight big tobacco’s latest scheme to target kids – electronic cigarettes – since e-cigarettes will be taxed just like other tobacco products under this measure. 

 

Opposition:

Opponents of Proposition 56 include Tom Bogetich, the former Executive Director of the California State Board of Education; Arnold M. Zeiderman, M.D., the Former Director of Maternal Health and Family Planning, Los Angeles County Department of Health; and the Association of Orange County Deputy Sheriffs.

Opponents contend that Proposition 56 is a $1.6 billion “tax hike grab” that allocates just 13% of new tobacco tax money to treat smokers or prevent kids from smoking.  Opponents argue that more of the $1.6 billion annual tax should be dedicated to treating and preventing smoking rather than going to health insurance companies and other special interests.  Additionally, as there are many pressing problems in California, opponents state that if taxes are going to be raised, the new tax revenue should be spent on fully funding our schools, repairing roads, solving the drought, and fighting violent crime.   

Reflections on Church Teaching:

"Life and physical health are precious gifts entrusted to us by God. We must take reasonable care of them, taking into account the needs of others and the common good."   Catechism of the Catholic Church, no. 2288.

"The virtue of temperance disposes us to avoid every kind of excess: the abuse of food, alcohol, tobacco, or medicine."  Catechism of the Catholic Church, no. 2290.

"Temperance is the moral virtue that moderates the attraction of pleasures and provides balance in the use of created goods.  It ensures the will's mastery over instincts and keeps desires within the limits of what is honorable.  The temperate person directs the sensitive appetites toward what is good and maintains a healthy discretion."  Catechism of the Catholic Church, no. 1809.

Visit http://www.cacatholic.org/health-care for more information on Health Care issues in California.