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April./May
2002

Tobacco: The Big Tax Target

Across the country, an onslaught of tobacco excise tax increases has reached a crescendo not seen in a number years.

A vast majority of states are facing budget deficits, and no amount of belt tightening can cure the loss of revenues experience by a mild recession. Elected officials know tax hikes are political poison, but have pursued with near abandon the task of hiking tobacco taxes, which meet the least public resistance. Since smoking is voluntary, officials reason, citizens aren't required to bear the burden of these new taxes. Plus, they argue, higher taxes also serve a further public benefit by discouraging smoking and saving in future healthcare costs. Judging by the number of successful tobacco tax hikes that have been passed since January 1, a majority of legislatures agree with the reasoning, and with few other "easy" revenue sources, the decision is rarely "should we?" but "by how much?" By and large, the public seems to agree too.

Other Tobacco Products (OTP) are often lumped together with cigarettes in these tax hikes, but due to the lower sales volume, can occasionally be extracted from the hikes. The window of opportunity may be very small, but it is a far easier and faster battle to wage than efforts to roll back OTP or cigar taxes once they are signed into law and put into effect. Many arguments are silmilar, though.

A recent case in point is Connecticut, which passed a 61 cigarette tax hike in February, making it the third highest cigarette tax in the country (for now). But for the cigar industry, it could have been far worse, as the original bill introduce in January also faced a proposed amendment that would raise the OTP tax from 20 to 44 percent. Cigar smokers in Connecticut had the benefit of an in-state cigar industry to help lead a retaliatory fight in the state's capitol of Hartford. The resistance effort was headed by Topper Cigar Co.'s president, Chris Topper (the company is based in Meriden, Conn.), and included a local cigar retailer, a tobacco farmer, and a lobbyist. Their argument, just like those successfully presented in Oregon and New Jersey - which rolled back cigar taxes - was that higher OTP would simply drive cigar sales out of state, actually decreasing Connecticut's OTP revenues. In only one appearance before the legislature, the OTP tax increase proposal was dropped.

With tax bills being introduced and moving their way through the legislative houses so quickly, an immediate response is often key.

In addition to the efforts of the Retail Tobacco Dealers of America (RTDA), the Cigar Association of America (CAA) and others, one new trade group that turns one year old in April is NATO (National Association of Tobacco Outlets), which has made fighting tax hikes a top priority.

In this issue, writer Bob Ashley spoke with NATO executive director Thomas Briant about the association's efforts to to help its retail members quickly respond to every legislative assault. It has even constructed an extensive data bank that links member stores with the names of their state and federal legislators. The group monitors the state legislatures and can respond within 48 hours with alert sheets to retailers, forming the backbone of an effort to make smoker's voices heard. Retailers can give the alerts to their customers, creating a quick network of letter-writers voicing their opinions to office holders and newspapers. Such pro-active efforts are essential in swaying opinion.

The "out-of-state revenue loss" argument is one of the first truly effective tools retailers have had on their side in combating OTP taxes, but it's not the only one: Every tax and anti-tobacco proposal warrants the same, immediate response. Without an alternate voice, tax hikes will roll through unimpeded.

E. Edward "Ted" Hoyt III
Editor