High-Visibility Tobacco Tax Initiative Receiving Lots of Attention, Money

SmokingSACRAMENTO – There’s broad agreement that the 17 initiatives on the statewide ballot on November 8 cover some of the most significant public-policy issues to come before voters in more than a decade. For instance, voters will have a chance to legalize marijuana, outlaw the death penalty, put an end to the state’s virtual ban on bilingual education, approve a broad gun-control package and reduce prison sentences for some non-violent felons.

But two months before the election, one of the highest-visibility measures also is fairly narrow in scope. Proposition 56 would raise California’s relatively low tobacco tax (relative to other states) by $2 a cigarette pack – and increase taxes by an equivalent amount on all other tobacco products (cigars, chewing tobacco, etc.). It also would significantly increase taxes on electronic cigarettes and vaping products. It has high visibility right now because of a series of advertisements opponents are running on radio stations across the state.

Supporters pitch the measure as a means primarily to boost public health. “An increase in the tobacco tax is an appropriate way to decrease tobacco use and mitigate the costs of health care treatment and improve existing programs providing for quality health care and access to health care services for families and children. It will save lives and save state and local government money in the future,” according to the initiative’s findings.

Gov. Jerry Brown recently signed into law a package of anti-tobacco bills that, among other things, raise the smoking age to 21. Studies of addiction show that teens who begin smoking are more likely to continue this dangerous habit throughout their lives. Backers of this initiative argue that raising the prices of cigarettes is another main way to dissuade people from smoking. And they point to the costs to the health system imposed by smokers.

But the measure’s opponents are focused increasingly on the spending aspects of the proposal. According to the official ballot argument against the measure, “Prop. 56 allocates just 13 percent of new tobacco tax money to treat smokers or stop kids from starting. If we are going to tax smokers another $1.4 billion per year, more should be dedicated to treating them and keeping kids from starting. Instead, most of the $1.4 billion in new taxes goes to health insurance companies and other wealthy special interests, instead of where it is needed.”

An analysis by the non-partisan Legislative Analyst’s Office confirms that only a small percentage of the estimated $1.4 billion in new revenues are earmarked to such programs. The main priority of the new funds, based on the LAO analysis, is to “replace revenues lost due to lower consumption resulting from the excise tax increase.” That reinforces the odd conundrum faced by California and other states. They use tax and regulatory policies to promote public health by reducing smoking, but then struggle to find funds to pay for ongoing programs as the number of smokers – and therefore the number of tobacco-taxpayers – keeps falling.

The initiative then earmarks some funds to law enforcement, to University of California physician training, to the state auditor and to administration. But 82 percent of the remaining funds go to “increasing the level of payment” for health care related to Medi-Cal, the state’s health-care program for low-income people. Prop. 56 opponents therefore argue it’s designed mainly to benefit health-insurance companies and other interest groups – and includes few limits on how they spend the money they receive.

Furthermore, the initiative bypasses educational-funding requirements under Proposition 98, the 1988 initiative that now requires approximately 43 percent of state general-fund revenues to be directed to the public-school system. As the LAOexplained, “Proposition 56 amends the state Constitution to exempt the measure’s revenues and spending from the state’s constitutional spending limit. (This constitutional exemption is similar to ones already in place for prior, voter-approved increases in tobacco taxes.) This measure also exempts revenues from minimum funding requirements for education required under Proposition 98.”

It’s not unusual for a major tax hike measure to ignite controversies over how the new revenues will be spent. But there’s a serious question about whether this initiative will meet its health-improvement goals given the way the tax hammers a common product used by people to quit smoking.

In a research paper co-authored with my R Street Institute colleague Cameron Smith, we note the measure boosts excise taxes on vaping by 320 percent. The key, stated goal of the tobacco tax increase is to dissuade people from buying cigarettes. By the same logic then, the massive boost in taxes on e-cigarettes seems designed to dissuade people from using them.

Yet as Public Health England explained: “The comprehensive review of the evidence finds that almost all of the 2.6 million adults using e-cigarettes in Great Britain are current or ex-smokers, most of whom are using the devices to help them quit smoking or to prevent them going back to cigarettes.” That government health agency urges public-health officials to promote vaping as a way to improve public health. Some U.S. studies come to similar conclusions.

Proposition 56 backers argue that vaping hasn’t been proven safe and the devices haven’t been around long enough to know long-term health effects. They also fear teens will begin vaping and then move on to combustible cigarettes, which everyone agrees are dangerous. And they point to a recent University of Southern California study suggesting teens who vape are six times more likely to begin smoking cigarettes than teens who don’t vape.

In reality, the study seems mainly to reflect “the difference between teens inclined to experiment and teens not so inclined,” according to a public-health expert we quoted. Furthermore, the e-cigarette industry doesn’t claim vaping is safe – they say it is a safer alternative to cigarette smoking. Research suggests they are about 95 percent safer.

California has the second-lowest smoking rate in the nation at around 12 percent. Only Utah has a lower percentage of smokers. So Proposition 56 doesn’t effect a broad swath of the public – but it is a contentious measure given questions about where the tax dollars will go and about its heavy-handed treatment toward vaping. Compared to many of the other initiatives on the ballot, this one might seem simple, but it’s about far more than whether the state government should boost taxes on a pack of cigarettes by two dollars.

Steven Greenhut is Western region director for the R Street Institute. He is based in Sacramento. Write to him at [email protected]

This piece was originally published by CalWatchdog.com

Los Angeles Laboratory for Local Tax Increases

taxesIn the primary election this month 89 local taxes and bonds faced voters. The total is expected to increase in November. In some jurisdictions voters likely will face multiple tax increases dedicated for different purposes.

Los Angeles is a prime example.

Today, the transportation agency known as Metro is considering a half-cent sales tax to fund transportation projects. Los Angeles already has a sales tax for transportation but it has an end date approaching. No end date on the new tax proposal. In a change of tactics, Metro leaders decided to extend the sales tax on a permanent basis.

Los Angeles city residents will probably also face a bond or parcel taxes to fund homeless remedies. The city council plans to move both measures forward, making the final decision on which mechanism to advance to the ballot once council members can further “study” the issue.

Consider that shorthand for which version polls better.

In fact, polling already seems to be moving the decision makers to consider a bond to benefit the homeless. Voters often look at bonds as free money, not realizing that they are funded by property tax increases. Polling shows greater acceptance for bonds than parcel taxes, which have the dreaded “tax” word attached.

In reality, a $1 billion bond would cost twice as much as the $1 billion parcel tax program because of the interest to pay the bond. Parcel taxes have their own issues that could upset a campaign to achieve the necessary two-thirds voter for passage, the same mark bonds must hit. Would a parcel tax be levied per parcel or per square footage? Square foot charges are aimed at collecting more revenue from larger, commercial properties, which likely would open the door for an opposition campaign funded by business. In addition, a square footage tax may be challenged as unconstitutional.

Despite the economics of the more expensive bond proposal, the politics favor pursuing that approach.

Meanwhile, Los Angeles County is considering a parcel tax for parks. The county also considered raising an income tax for the homeless but that plan has sputtered. It required state approval which it did not get. The parks proposal would more than double revenue now brought in by the property assessments that currently help fund county parks. Again, business is opposed to the square foot method and has informed county supervisors that so many, varied tax measures cannot be justified.

In addition to local taxes, voters will face statewide tax measures on the ballot. The $2 a pack cigarette tax increase and the Proposition 30 income tax extension initiatives are both expected to be on the ballot. And, let’s not forget that the marijuana legalization measure has a tax attached to the growth and sale of cannabis.

Analysts wonder how voters will react to an onslaught of taxes. The question is particularly of concern in localities like Los Angeles if all the taxes are placed on the ballot. Many of the local taxes and bonds, unlike the state measures, require a two-thirds vote to pass.

My guess is that multiple tax measures will benefit opponents who need just over one-third of the vote to defeat most tax measures.

ditor of Fox & Hounds and president of the Small Business Action Committee.

This piece was originally published by Fox and Hounds Daily

10 Would-Be Initiatives Prep for November Ballot

As reported by the Sacramento Bee:

They aren’t yet officially on the November ballot, but 10 would-be fall initiatives are being readied with healthy fundraising efforts.

In the weeks since the May 20 deadline to submit initiative signatures, the campaigns pushing the measures have reported collecting more than $3.2 million. The biggest recipient has been the campaign to increase cigarette taxes by $2 a pack, to $2.87, with Save Lives California raising more than $1.1 million.

Almost all of that came from the California State Council of Services Employees, which donated $1 million on May 31.

Backers of the sentencing reform measure initiated by Gov. Jerry Brown have raised more than $765,000 since May 20. The bulk of that came from the California Democratic Party, which gave $500,000 to Californians for Public Safety and Rehabilitation on Wednesday. …

Click here to read the full story

Cap-and-Trade, Cigarette Tax and the Tale of Dwindling Funds

SmokingCalifornia’s cap and trade program and cigarette tax increases have something in common — the more they encourage behavioral changes in reducing greenhouse gas emissions and smoking, the less revenue they bring in. If the goal is to reduce the pollutants and the smoke then the programs can claim some success. But, these programs also appear to be about the money.

While the Legislature considered ways to divvy up the current cache of cap and trade money, tremors were felt through the system when the May cap and trade auction sold only 11 percent of the permits offered to business and fell far short of the expected revenues.

The cap and trade program is designed for companies to cap greenhouse gases or purchase permits at auction or traded in the market.

What happens if the polluting companies achieve the goal of reducing greenhouse gases and do not need permits? As Stanford economist Frank Wolak told the Los Angeles Times in a comprehensive article on the cap and trade issue, “To the extent that not all the permits are being sold, that is a success of the program.”

But not necessarily a positive to those who want to spend the money that come from the cap and trade auctions.

Chief among them is Gov. Jerry Brown. He needs the money to bolster his bullet train project, which is not capturing the revenues it needs to meet its enormous cost. Other programs designed to reduce climate change are also dependent on money from cap and trade. If greenhouse gases are reduced and there is no need to spend on permits, money is not available for the train or other projects.

There is a similar story when cigarette taxes are raised. Programs are funded with the expected revenue but when the increased taxes turn off smokers from purchasing cigarettes (that’s part of the plan we are told by advocates) the money dries up liked cured tobacco leaves.

Cigarette purchases are down and so is the revenue. The fund that pays the First 5 commissions has seen state revenue from the cigarette tax drop about $150 million annually since its peak. Now there is an initiative bid for an additional cigarette tax. The measure’s proponents recognized the potential for revenue decreases if the tax passes. In the measure, they wrote that if the new tax causes reduced tobacco consumption, that make-up revenue from the new tax would be transferred to existing tobacco funded programs.

But once this new tax reduces consumption where does the money come from to fund those existing programs or for the recipients who will receive money if the cigarette tax initiative passes?

Is cap and trade a different kind of revenue source than taxes on cigarettes? The California Chamber of Commerce doesn’t think so. That organization is seeking a court ruling that cap and trade revenue is a tax. Like the cigarette tax, given the goal of both the cap and trade fee and cigarette tax, the cap and trade charge could also be considered a “sin” tax. It is being levied to punish (and reduce) a certain practice.

It has been argued that not as much money would be needed for the anti-smoking programs or greenhouse gas reduction because problems associated with these concerns would be at least partially solved.

Show of hands from those who believes the money won’t be missed by those who currently receive it and that they won’t try to find a way to make their budgets whole again.

Thought so.

This piece was originally published by Fox and Hounds Daily

Top 5 Taxes You May See on the 2016 Ballot

http://www.dreamstime.com/-image18514272In June 2014, I wrote a column forecasting the tax increase measures that might be on the November 2016 ballot given the conversations going on at the time. I updated the list in March of this year. It’s time for another update, this one prompted by an answer to a question Senate President Pro Tem Kevin de León gave to Comstock’s Magazine.

The pro tem was asked where he stood on the change to Proposition 13 to separate commercial property from residential property. De León responded that he had no position on the plan at present but added: “I do think that revenue enhancement measures deserve a very serious debate, whether it’s a continuance or some variance of Proposition 30 or some other proposal.”

While the legislature gets together next week with the opportunity to have that debate, most likely any tax measure on the 2016 ballot will come via the initiative process.

As I wrote previously, situations and strategies change. What’s being discussed most heavily today is not necessarily what will be pushed to the ballot for voters to decide in 2016.

  • OIL SEVERANCE TAX

As reported previously, whether the oil severance tax initiative moves forward depends on one man – hedge fund billionaire and NextGen president, Tom Steyer. Recently, Steyer took the focus away from the oil severance tax and held a press conference supporting a bill for more transparency about oil company revenues. During the press conference, he suggested if the legislature did not act on a transparency bill he may take one to the ballot via initiative. While Steyer certainly has the ability to attempt more than one initiative at the same time, history shows that doesn’t always work out so well. (See John Van de Kamp 1990.) With the potential of other tax measures on the ballot, there seems to be less emphasis moving forward with the oil severance tax. It barely hangs on the list at number 5.

  • SERVICE TAXES

While Senator Bob Hertzberg’s plan was mentioned in previous columns, it was never ranked. However, as Hertzberg works to build support for his plan, which he says will tie the tax system more closely to the current state economy, the idea of many different taxes potentially appearing on the ballot may present an opening for Hertzberg. He could argue that his answer to California’s tax system flaws is a better overall fix than other proposals. And, remember, he also has potential financial support from Nicolas Berggreun’s Think Long Committee.

  • SPLIT ROLL

The grassroots/public union effort to push a split roll is still ongoing. Whether the big money is ready to commit to this approach is uncertain. Since the last rankings a second property tax surcharge on all properties that are assessed on the property tax rolls at $3 million and more has been filed. While this measure doesn’t seem to have the support to move into the top 5, it complicates the split roll position. Some have suggested that the split roll is being pushed to convince the school establishment that any tax measure that reaches the ballot should provide for more than schools. Whether for leverage or an earnest effort to achieve a split roll property tax, there is a decent chance the measure will be filed.

  • CIGARETTE TAX

The cigarette tax holds in the second position although it is clawing to gain the top spot. An initiative has already been filed. However, there will be a lot of talk in the Special Session on Medi-Cal reform perhaps including a cigarette tax increase to help fill the Medi-Cal funding hole. If the legislative session ends with no cigarette tax increase, the chance that such a tax will make the ballot probably jump this one to number one.

  • EXTENSION OF PROPOSITION 30

Extending or slightly changing Prop. 30 and continuing it holds the top spot because many supporters of a tax increase believe this type of measure may be the easiest one to pass. However, when the Public Policy Institute of California asked Likely Voters in May if they supported the extension of Proposition 30, 46 percent said yes, 30 percent said no. Not strong numbers. But all you need to know about a Prop 30 extension remaining the most likely tax measure you’ll see on the November 2016 ballot is the answer Senator de León gave above. Instead of talking about a change to Prop. 13 when questioned, he specifically cited the possibility of continuing Prop. 30. At this time it remains number 1.

Follow Joel Fox on Twitter @1JoelFox1

The Cigarette Tax Dilemma

cigarette smoking ashesIs a tax on cigarettes a revenue raiser or a “sin tax”—used to discourage individuals from using products considered harmful? The effort to raise taxes on cigarettes – there is a measure in the legislature as well a ballot initiative moving through the process—often directs new revenues toward specific purposes. Yet, the increased taxes often lower the use of a product thus reducing the revenue for organizations and agencies.

Last, week the Los Angeles Times reported that the First 5 committee, which received funding from a previous cigarette tax increase, was concerned that fewer smokers meant less revenue. The First 5 group, which focuses on improving early years of children’s lives, is attempting to rally the legislature to add revenue from any new cigarette tax to include First 5 in those groups that receive new revenue.

But the cycle will certainly continue for First 5 and any agency that receives cigarette money. A tax increase will likely once again reduce the number of smokers and cigarette purchases and at some point reduce the revenue agencies expect to receive.

The cigarette tax revenue for First 5 has dropped about 17% to $460 million over a five-year span.

Yet, shouldn’t the sponsors of the cigarette tax measures that purport to advance the tax to educate the populous about the negative effects of smoking cheer the reduction in the number of cigarettes purchased?

According to the article, First 5 is looking at an alternative for additional revenue by examining the promotion of a marijuana initiative and the tax revenue such an action would bring in to help replenish the First 5 coffers.

Others groups undoubtedly will also have their eyes on marijuana tax money despite the recent report from Lt. Gov. Gavin Newsom’s committee studying marijuana legalization that declared tax revenue should be low priority in considering legalizing marijuana.

Is concern for revenue paramount to the reduction of “sin” with many groups and agencies who receive these tax dollars?

Joel Fox is editor of Fox & Hounds and President of the Small Business Action Committee

Originally published by Fox and Hounds Daily

Top 5 Taxes You May See on 2016 Ballot

Last June, I wrote a column forecasting from least likely to most likely the tax increase measures that might be on the November 2016 ballot given the conversations going on then.

Time for an update.

As is nearly always the case in the political world, situations and strategies change. What’s being discussed most heavily today is not necessarily what will be pushed to the ballot for voters to decide in 2016.

By measuring fact, rumor and innuendo I’ll offer my reading of the top five tax possibilities for the November 2016 ballot.

First, a word about those that did not make the list this time. Previously, a soda tax was on the list but that possibility seems to have faded for the moment. Instead, advocates are considering labeling sodas with more information about the sugar content.

There is a constant buzz about restructuring the entire tax system and that has been heightened by the introduction of a bill by Senator Bob Hertzberg that would re-do the tax system, cut some tax rates, and introduce a service tax. Hertzberg hasn’t developed the plan in full as yet. Both the left and the right have attacked the idea. However, he also is working closely with the Think Long Committee, which has the resources to qualify a measure for the ballot. As of now, the idea is not ready for consideration.

To the list, then:

  1. OIL SEVERANCE TAX. Previous Ranking #3.

Whether the oil severance tax initiative moves forward depends on one man – hedge fund billionaire Tom Steyer. He said he would rather work through the legislative process but the bill would unlikely pass the legislature. Steyer also is said to be interested in promoting an initiative that would require a two-thirds vote in local communities to approve fracking for oil. While he has the resources to do more than one measure, the odds are he would focus on just one, if any.

  1. SURPLUS! NO NEW TAXES. Previous ranking: Unranked

Okay, this is obviously not a tax increase measure. However, with the recent announcement of one billion unexpected dollars in the state treasury many experts predict that the state budget will have a surplus of two billion dollars or more. Under such conditions, some observers suggest new taxes won’t fly with the voters, so why try? A lot will depend on the fiscal situation heading into next year’s budget, but even if the economy holds steady and the budget is in good shape, it is hard to imagine there won’t be at least one tax increase measure on next year’s ballot. Still, the chances are more likely today than they were a year ago that a surplus could stall the tax increase movement.

  1. SPLIT ROLL. Previous ranking: #2

While there is still an on-going grassroots effort to promote a split roll property tax requiring business property to be taxed on a different basis than residential property, big players have yet to commit to funding such an initiative. Certainly, there would be big money spent to oppose such a measure so both sides are considering the issue carefully. The school establishment would have to step up to support a split roll and consider how a property tax on the same ballot with an extension of the Prop 30 taxes will play. Also, a school bond measure may be on the ballot attracting attention from the school folks. A couple of sources tell me a little air has come out of the split roll effort, so while it certainly hasn’t gone away, it drops to #3.

  1. CIGARETTE TAX: Previous ranking: #4

The possibility of a cigarette tax on the ballot has moved up simply because some of the items in front of it moved down in the rankings. There really hasn’t been a change in the emphasis of a cigarette tax by proponents. They will try the legislative route but if unsuccessful will consider going to the ballot where they were very close to passing a measure the last time they tried. No Lance Armstrong on their side this time, which is a good thing, although they’ll miss the money his group donated.

  1. EXTENSION OF PROPOSITION 30. Previous ranking: #1

No change here. Many insiders believe Proposition 30 would be the easiest tax to pass since it is already levied. Especially if the sales tax piece is removed, many voters would not directly feel the tax’s pinch. All the spending interests may not be happy since schools get most of the money, but extending Prop 30 still stands as the most likely tax measure to be on the ballot. The biggest question: What will Governor Brown say about continuing the “temporary tax?”

Joel Fox is Editor of Fox & Hounds and President of the Small Business Action Committee

Follow Joel Fox on Twitter @1JoelFox1

Originally published by Fox and Hounds Daily