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October 1998
Volume 25
Number 5

CALIFORNIA SMOKERS HAVE CHOICES;
RETAIL TOBACCO SHOPS DON'T

Initiatives that rely on funding from hiking taxes on tobacco products have become so commonplace in the nation's political arena that they fail to raise consumer eyebrows the way they used to.

Which is not to say that smokers - and the general electorate - have grown complacent in accepting their inevitability.

In California, the latest assault on tobacco has come in the form of Proposition 10, actor-director Rob Reiner's ballot measure known formally as the "State and County Early Childhood Development Programs." Like many tobacco tax hikes that gain initial momentum behind the guise of a worthy social cause, Proposition 10 has proved to be confusing to the tobacco industry and to California residents alike.

Cigarette excise taxes would rise by $.50 to a new rate of $.87 per pack. But the effect on OTP taxes is an entirely different matter. It wasn't until a report was released by California's Legislative Analyst's Office that the full impact on retail tobacco shops was made clear: not even the cigar industry could initially discern precisely what effect the initiative would have on the price of cigars and pipe tobaccos. The picture isn't pretty.

In short, if the measure is approved by voters, OTP taxes would rise from 26.2% currently to 61.5% on January 1. Then, on July 1, 1999, California's annual recalculation of the OTP tax - which is based on a formula linked to the cigarette excise tax rate - would cause the OTP tax to jump to 96.9%.

The effect on tobacco retailers isn't difficult to imagine. "If the initiative passes, there is no doubt that the new tax rates would have a devastating impact on OTP sales in California," stated the Cigar Association of America. "It would also threaten the very existence of retail smoke shops." While California cigar smokers could choose to shop by mail and avoid all state excise taxes entirely, the state's tobacco retailers have no such magic elixir. They need look no further than New Jersey, which raised its OTP tax from 24% to 48% on January 1, 1998. According to the Cigar Association of America, sales of premium cigars in New Jersey fell by over 50%.

By targeting a favorite - tobacco - Reiner has distracted attention from Proposition 10's regressive taxation, and its bureaucratic attempt to fulfill its intended goals. California currently spends $2 billion annually on early childhood development. And Proposition 10 would provide absolutely no money to California schools, according to the RTDA. "Nobody knows what Rob Reiner is really going to do with your tax dollars," stated the Retail Tobacco Dealers of America. "Proposition 10 would create 59 state and county commissions. It would authorize over 500 new political appointees, and these bureaucrats would be self-regulated, self-audited, and accountable to no one."

On a lighter note, while the publisher of a certain famous consumer cigar magazine advised retailers at the 1998 RTDA Trade Show & Convention to only stock cigars from major manufacturers, Smokeshop would like to note that many worthy, smaller brands continue to win accolades from consumers and retailers alike. An across-the-board dismissmal of minor manufacturers means missing the potential gems lost in the crowd. Meanwhile, a throng of questionable quality no-name cigars have already found a new lease on life in the aftermath of Kenneth Starr's report to Congress. Nearly a dozen Presidential or Lewinsky-themed brands appeared overnight, mostly on the Internet. And that's where they should have been all along.

E. Edward Hoyt III