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Prop 56: $2 Sales Tax on Cigarettes

Sheppard Mullin

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Updated at 1:30 PM Nov. 9, 2016

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Prop 56 has passed by a margin of 62.9% yes to 37.1% no. There will be a $2 per pack increase in the cigarette tax and a similar increase on most other tobacco products and e-cigarettes

 

What would Prop 56 do?

It would add a $2.00 sales tax to every pack of cigarettes sold in California. It would also add a tax on tobacco products and e-cigarettes that contain nicotine. The current sales tax is 87-cent on a pack of cigarettes. So if Prop 56 passes the total state tax would be $2.87. This is on top of the federal tax on cigarettes of $1.10.

How does California’s current cigarette tax compare to other states?

California’s current 87-cent tax on a pack of cigarettes places it 35 th lowest among the 50 states. New York is #1 with a cigarette tax of$4.35. The national average is $1.60 a pack.

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How much money would the cigarette tax raise?

The estimated revenue would be between $1 billion and $1.6 billion annually. Over time the revenues may fall as higher prices deter consumers.

How would the money be spent?

Most of the money (82%) would go Medi-Cal, that’s the program that offers health coverage to the poor. The rest would to programs to help people stop smoking, or prevent people from starting. Some would also go to tobacco research and enforcement of tobacco laws.

What are the arguments for Prop 56?

Supporters say:

  • Tobacco is the single most preventable cause of death.
  • Health care for heart disease, cancer, lung disease and oral diseases cost Californians $13 billion. California taxpayers pick up $3.5 billion of that $13 billion
  • A $2 tax will discourage smoking and help cover associated medical costs.
  • Most e-cigarettes contain the addictive nicotine too. Currently there is no tax on e-cigarettes.
  • There are 470 e-cigarette brands in more than 7000 flavors including candy flavors to appeal to youth.
  • California’s tax on cigarettes hasn’t been raised since 1998.

What are the arguments against Prop 56?

Opponents say:

  • Most of the cigarette tax money will go to health insurance companies. They will get as much as $1 billion or more to treat the same Medi-Cal patients they already treat.
  • Only 13% of the cigarette tax money will go to treat smokers or stop kids from smoking.
  • There are other pressing problems like funding schools, repairing roads and fighting crime. New taxes should be raised to help solve these problems instead.
  • The state’s constitution requires that schools get 43% of any new tax increases. Prop 56 is written to skirt this requirement.
  • Nearly 10% of the tax revenues can go to administrative costs ($147 million). That’s nearly as much as will go to tobacco prevention efforts.

Has this been tried before?

Yes, twice. In 2012 a proposition to add a $1 tax per pack of cigarettes was on the ballot. In 2006 a measure would’ve added $2.60 to each pack. Both failed.

Who is supporting Prop 56?

Prop 56 is supported by numerous health organizations including the American Lung Association, the American Cancer Society Cancer Action Network, American Heart Association and the California Medical Association. A large donation was also made by a billionaire environmentalist, Tom Steyer, whose mother died of lung cancer. He contributed $1 million to get it on the ballot. As of early August the proponents have raised $16 million (as of 8/4/16) to support Prop 56.

Who is against Prop 56?

Big tobacco companies including Altria, R J Reynolds are against Prop 56. They are expected to spend millions to try to defeat the measure. In 2012 these two companies spent a combined $38 million to successfully defeat a similar measure. Before that, in 2006 tobacco companies spent $67 million in a campaign that defeated a proposed $2.60 tax per pack.

The “vape shops” that sell e-cigarettes are also very much against the tax. They say most of the money from the tax will go to medical insurance providers and Big Pharma.

Show Me the Money

 

A "yes" vote means:

a $2 per pack increase in the cigarette tax and a similar increase on most other tobacco products and e-cigarettes

A "no" vote means

no new taxes on cigarettes, tobacco products or e-cigarettes

 

Click here for a cheat sheet on all the California ballot propositions.

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