California Will Raise Taxes On Cigarettes And Vaping

By Paul Gaita 11/10/16

With the passing of Proposition 56, smokers' wallets in the Golden State are about to take a hit.

California Will Raise Taxes On Cigarettes And Vaping

Among the many highs and lows of the Nov. 8 election was the approval of Proposition 56 on the California ballot, which marked a significant victory for tobacco opponents and healthcare groups.

The initiative, which sought to increase the cigarette tax by $2 a pack and bring equivalent increases on other tobacco products and electronic cigarettes, won by earning 62.9% of the vote, and will boost taxes on cigarettes from $0.87 to $2.87. According to the Los Angeles Times, passage of the bill is expected to raise more than $1 billion in new tax revenues for California, most of which will go to Medi-Cal, the state's healthcare program for low-income individuals.

Supporters included billionaire investor Tom Steyer, who co-chaired the proposition campaign, and representatives from the California Hospital Association and the Service Employees International Union, who raised more the $30 million to promote it.

"We had a broader coalition to support the idea of pushing back against the tobacco companies and raising the cigarette tax than ever before," said Steyer. "That kind of broad coalition works against organized and concentrated economic interests when we stick together and when we all turn out and vote."

Opposition to the bill was lobbied by major tobacco companies like R.J. Reynolds, which spent more than $70 million in California alone, along with the vaping industry. The former argued that the measure would increase sales for black market tobacco products and send just 13% to tobacco prevention and control programs, while the latter opined that vaping devices are a safer alternative to cigarettes and should not be taxed at the same rate.

Proponents of Prop 56 believe that the passage of the bill will have immediate benefits for Californians and the nation as a whole.

"This is a huge victory for tobacco prevention efforts," said John Schachter, director of state communications for the Campaign for Tobacco-Free Kids. "Every 10% increase in the price of cigarettes brings about a 7% decrease in use by youth and a 4% decrease overall."

Morningstar equity analyst Philip Gorham noted that the tax will lower interest in vaping as a whole. "When vaping gets taxed like tobacco, and when the flavors are restricted and nicotine levels controlled, I think we are going to see the appeal of vaping evaporate," Gorham told Reuters.

The success of the ballot initiative may also inspire other states to follow suit.

"You can't ignore that this is an avenue that states could take," said R.J. Reynolds spokesperson David Howard. However, similar measures on three other state ballots did not generate similar results. North Dakota, which has the third-lowest cigarette tax in the nation ($0.44 a pack), turned down the first proposed increase in a quarter century, while Colorado voters knocked down Amendment 72, which would have added $1.75 to each pack, and added taxes to cigars, chewing tobacco and other related products.

Missouri, which has the lowest cigarette tax in the United States at $0.17 a pack, rejected a measure that would have increased taxes by $0.15 annually for four years.

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Paul Gaita lives in Los Angeles. He has contributed to the Los Angeles Times, Variety, LA Weekly, and The Los Angeles Beat, among many other publications and websites.