The 30 cent per pack tax increase called for in HB 238 (Saunders) would be distributed to the Department of Health for tobacco prevention, reduction, cessation and control programs; to the Huntsman Cancer Institute for cancer research; and to the University of Utah Medical School. The tax hike of 10 cents per pack in SB 58 (Buttars) would expand the Child Health Insurance Program (CHIP) to the families of children who already qualify for the program.
On the surface the idea for higher tobacco taxes may have some, requiring those who consume these unhealthy products to pay the costs of tobacco prevention and tobacco-related medical expenses. But upon closer scrutiny, it’s obvious that the adverse effects of a 30 cent per pack tax hike outweigh any positive benefits.
First of all, the current taxes on cigarettes and tobacco products are already sufficient to cover all of the budget requests in these two pieces of legislation — and then some. The average retail price of a pack of cigarettes in Utah today is between $3.25 and $4.00 depending on the product quality and the retailer mark-up. Utah already imposes a cigarette tax of 51½ cents per pack plus sales taxes of approximately 23 cents per pack, totaling 74½ cents in state taxes. The tobacco settlement also adds another 55 cents per pack in nationally uniform, but hidden taxes, perpetually yielding $35 million per year for Utah budget makers. On top of this, the federal tax is 39 cents per pack, bringing the grand total to $1.68½ per pack. If the 30 cents per pack is adopted, Utah smokers will pay nearly $2.00 per pack.
Well, not all Utah smokers. Many will find it cost effective to purchase bootlegged cigarettes. According to the National Taxpayers Union Foundation, Canada’s doubling of cigarette taxes in 1993 led to an enormous increase in smuggling, resulting in 40% of all cigarettes being sold on the black market. After Canada’s tobacco tax hike, underage smoking actually increased, due to greater availability of black-market cigarettes. Cigarette use among 15-19 year-olds went up by more than 25%. In 1997, the New York Times estimated that 1/4 of the world’s cigarettes were being smuggled to evade taxes.
The difference between Utah’s would-be 81.5 cent per pack state rate and the Wyoming’s 12 cent rate would be ample incentive for smokers to create cooperative efforts to do the “Evanston run” on a regular basis. The last time Utah raised its tobacco tax, the Evanston, Wyoming area was reported to have experienced a huge increase in the sales of beer, fuel, cigarettes, and other tobacco products. Some legislators are calling the current proposal to increase Utah’s tax the “Evanston, Wyoming convenience store revitalization act.” Colorado’s current state tax is just 20 cents per pack, New Mexico is 21 cents, Idaho is 28 cents, and Nevada is 35 cents. What’s more, the incentive to purchase cigarettes through federal installations such as Hill Air Force Base’s PX and tribal reservation stores, where no state taxes are imposed, are expected to increase if this 30 cent tax is adopted.
It’s not enough to lose the tax revenues to other states, but diverting the economic activity to retailers outside of Utah creates a significant impact for Utah retailers, and therefore, the Utah economy.
But those hardest hit by a Utah cigarette tax hike would be the poor. In 1987 a Congressional Budget Office (CB0) study found tobacco taxes to be the most regressive taxes of all taxes, impacting low-income persons 15 times greater than the more well-to-do. In 1997, a group from KPMG Peat Marwick updated CBO’s work, finding that those earning $30,000 a year or less pay 15.3% of all federal income and FICA taxes, but pay over 47% of all tobacco taxes. If the 30 cents per pack tax passes, the typical Utah smoker will pay $870 per year in tobacco taxes.
If tobacco foes want to increase Utah tobacco tax revenues, they should lobby a cigarette tax hike through the Wyoming legislature.