On Tuesday, the Mass. Senate will be taking up tax legislation that includes a $1.00/pack increase in the cigarette tax. The bill passed the House in early April.
HCFA and the ACT!! Coalition, working with Tobacco Free Mass, strongly support the proposed tobacco tax increase. As we’ve said before, tobacco taxes provide stable, predictable revenue, and also reduce smoking, particularly among teens.
Some see this as a contradiction, an oxymoron. But there’s no contradiction. Smoking levels do predictably decline – about a 4% drop for every 10% increase in the retail price. But the increase in the tax rate more than makes up for the decline in sales. In fact, every state that has passed a significant increase in the tax rate has seen an increase in revenue.
Cutting tobacco use improves public health, reducing health care costs and saving lives. A comprehensive study detailed the savings to our health and our health care budget due to a $1.00/pack increase:
- Preventing more than 46,100 Massachusetts kids from becoming addicted adult smokers
- Prompting more than 25,800 current adult smokers to quit for good
- Saving more than 21,500 Massachusetts citizens from dying prematurely from smoking
- Cutting future public, private sector, and household health costs in Massachusetts by more than $1.0 billion
- Reducing future state MassHealth program expenditures caused by smoking by more than $173 million.
Our current tax rate of $1.51 is second-lowest in New England, and every New England state has increased their tax since ours was last raised. New Hampshire’s Governor has proposed another cigarette tax increase just last week.
Amendments
Senator Montigny has proposed an amendment to the tax bill to earmark the new revenue for health reform. This would assure the public that the revenues will be invested in our health care system to futher improve public health. Polls have shown increased support for the tobacco tax increase when the revenues are devoted to health reform.
Senators Baddour and Tucker have proposed an amendment to strike the cigarette tax increase. They represent towns along the New Hampshire border, and may be concerned about the loss of business to stores near New Hampshire. This concern is misplaced. In fact, following our last increase, tobacco sales licenses increased along the NH border. People are willing to drive a distance to save on the sales tax when buying a refrigerator or computer, but not for cigarettes. Interestingly, because many smokers want to ration their supply (they know it’s bad for them), smokers generally don’t go out of their way to save money on cigarettes. With gas heading towards $4/gallon, the border impact will be reduced even more.
Senator Tisei has an amendment that would strike longstanding provisions in current law that prohibit stores from using cigarettes as “loss leaders” — selling them below cost to boost sales. The loss leader prohibition makes sense, given the addictive nature of tobacco products and the continued marketing of tobacco to kids.
One other amendment to note: Senators Walsh, Jehlen and Marzilli are proposing extending the 5% sales tax to liquor, with the revenue going to Substance Abuse Health Protection Fund.
Brian Rosman
I don’t think it is reasonable to assume that a 4% reduction in demand from a 10% cigareete price increase is a linear function. The price of a pack of cigarettes in NYC may soon approach $9.00. As the price goes up, not only will demand drop more sharply, but smuggling will go up as well. I think you will reach the point of diminishing returns a lot sooner than you expect.
Advocates need to remember that while an increase it tobacco taxes reduces tobacco use (especially among youth), that an increase in ONLY the cigarette tax is not enough. The tax on cigarette-like “little cigars” must also be raised to discourage smokers from merely switching to another “nicotine delivery vehicle” rather than just not smoking at all.