Monday, October 24, 2016
Reiboldt discusses state tobacco tax proposals
The focus of my Capitol Report this week is Constitutional Amendment 3 and Proposition A. Separately, both are seeking to increase Missouri’s tobacco tax, but each is in conflict with the other.
Currently, Missouri has a 17-cent-per-pack tax on cigarettes, the lowest in the nation. The national average for state tax is $1.65 per pack, with an additional $1.01 for federal excise tax. Perhaps this is the reason why there have been efforts to increase the tax in order to create more money for state government. At this time, money received from the 17 cent tax on a pack of twenty cigarettes is deposited into three different funds: the State School Money Fund receives 9 cents per pack; the Health Initiative Fund receives 4 cents per pack; the Fair Share Fund also receives 4 cents per pack.
Constitutional Amendment 3 is a proposal that will amend the Missouri Constitution to yearly increase taxes on cigarettes through 2020, at which time the tax increase will total 60 cents per pack. The amendment also creates a fee to be paid by cigarette wholesalers of 67 cents per pack on certain products. Furthermore, it provides that the funds generated by these taxes and fees will be deposited into a newly established Early Childhood Health and Education Trust Fund.
Proposition A would change Missouri law to increase cigarette taxes in 2017, 2019, and 2021 for an additional tax increase totaling 23 cents per pack of twenty cigarettes. The proposition would also increase the tax paid on other tobacco products by 5% of the manufacturer’s invoice price. Proposition A further provides that the funds generated by these taxes shall be used exclusively to fund transportation infrastructure projects.
What is unusual about both of these proposals is that they are being largely financed by cigarette manufacturers. Mega corporation Reynolds American Incorporated has given upward to $3 million in support of Amendment 3—titled “Raise Your Hand for Kids”—while Proposition A is funded primarily by the smaller tobacco manufacturers and retailers. This has resulted in a renewal of “open warfare” between these two groups: big tobacco vs little tobacco. Not only has each side written a huge check, they have hired professional political operatives and lobbyists to push their proposals.
In 1998, the Tobacco Settlement Agreement, in which large tobacco companies agreed to make settlement payments to 46 states, resulted in years of lawsuits by states in efforts to offset the Medicaid costs attributed to smoking. Manufacturers didn’t participate in the settlement, because they didn’t exist then or they were small and didn’t have the marketplace advantage that larger companies did. Smaller tobacco companies enjoyed a loophole that existed in the 1998 settlement agreement. Those that concentrated their sales in a few states, rather than nationally, were able to get back their escrow payments, while still complying with the law. Missouri is the only state who has not fixed this loophole and, because of that, the door is open for Constitutional Amendment 3 and Proposition A. Future litigation relating to this settlement is unclear, but if Amendment 3 passes, I predict we will see multiple court cases.
The campaign behind both of the competing tobacco increase measures pits the large tobacco companies supporting Constitutional Amendment 3 against smaller tobacco companies who put Proposition A on the ballot via petition initiatives. Large tobacco companies are attempting to get back at the smaller companies by trying to close the loophole that allowed the smaller companies not to make payments in the 46 state settlement of 1998.
The tobacco industry and its companies are much different than other corporations. They are willing to accept minor compromises and setbacks in the short run in order to protect their future interests. As one person stated: ”They always play the long game.” Their goal is to keep users hooked on their products.
Opponents of the two proposals include the American Cancer Society, the American Heart Association, American Stroke Association, American Lung Association, the Campaign for Tobacco-Free Kids, the Healthcare Foundation of Greater Kansas City, and Tobacco-Free Missouri, plus all major education groups in the state, as well as a bi-partisan group of 112 state legislators who have signed on in opposition to both Amendment 3 and Proposition A. Personally, I signed on early in opposition to both, because there is more to these proposals than meets the eye.
Constitutional Amendment 3 and Proposition A are very dangerous schemes that contain numerous complicated issues and add other troubling provisions in the initiatives, such as an attempt to include the terms “abortion” and “abortion services” to be placed in Missouri’s Constitution (for the very first time). Consequently, it is much more than just a tobacco tax increase. These proposals are extremely alarming to those of us who have studied them in depth.
Now some may ask the question, “What happens if both of these measures are approved?” In Missouri, if there are two conflicting ballot measures that are approved, the measure with the most affirmative votes supersedes the other. However, this only applies when two constitutional amendments are in competition to each other. If a constitutional amendment competes with a proposed state statute, such as what we have this cycle, the amendment will take precedence over the proposed statute, no matter the vote count. The bottom line is that voters must be aware of what they are voting on.
Even though Missouri voters rejected tobacco tax increases in 2001, 2006, and 2012, it looks like the tobacco fight isn’t over. In the tobacco world today, the struggle is heating up again between the big guys and the little guys. The battle continues.