Tobacco taxes rise: Smoking decline is likely to continue

Retailers who sell cigarettes, cigars and other tobacco products say it’s too early to tell how much a hefty federal tax increase on tobacco products will have on sales.Altria Group, which includes Philip Morris USA, one of the nation’s largest manufacturers of tobacco products, expects the tax increase to accelerate the decline in cigarette sales seen nationwide in the past 10 years.

The federal tax increased 62 cents a pack on cigarettes April 1 — from 39 cents to $1.01 a pack. The tax on large cigars increased from 5 cents to 40 cents a cigar. The tax also increased substantially on chewing tobacco and other tobacco products.

Texas charges a $1.41 state tax on a pack of cigarettes, and a penny tax on cigars.

Texas is projected to lose almost $502 million in fiscal year 2010 in state tax revenue and annual payments from a settlement with tobacco companies due to an expected decline in cigarette sales caused by the federal tax increase, the Tax Foundation, a nonprofit research organization in Washington, D.C., estimated in a new analysis. New Mexico is projected to lose $42.4 million.

“Sales of cigarettes have dropped slightly, but I haven’t seen an effect on cigar (sales)” since the increase in federal taxes, said Brad Maynard, owner of Kern Place Cigars.

He has three stores in El Paso catering mostly to cigar smokers. “I’ve had some customers say they are going to quit smoking cigarettes” because of the tax increase, he said.

“haven’t seen much of a change” in sales of cigarettes and other tobacco products since the tax began, said Robert Elfinger, a spokesman at the drugstore chain’s Illinois headquarters. “Cigarettes are a very small percentage of our sales.”Paul Enger, 29, a graduate student at the University of Texas at El Paso, said the price increase of cigarettes has him trying to reduce his smoking habit.

“The government wants people to quit smoking. But as long as people keep smoking, they want to make a cut off of it. É They’re trying to make money off a bad habit,” Enger said.

“Unless you’re out looking for information, you don’t hear about it (tax increase) until you go to the store” to buy cigarettes, he said. “People are just kind of taking it. … What can you do? I’m trying to cut back.”

Enger tries to buy the lowest-priced cigarettes he can find, he said, and is now paying more than $4 a pack.

Maynard said his store sells cigarettes for about $6 for a pack of Marlboro to about $9 a pack for high-end cigarettes. Large cigars sell for $2 to $25 each, he said.

“Everyone should stop smoking for a month and see what happens to (tax) revenues,” Maynard said. “The government is addicted to the tobacco tax.”

The federal government collects more than $7 billion a year from excise taxes on tobacco products, reported Art Resnick, a spokesman for the U.S. Alcohol and Tobacco Tax and Trade Bureau in Washington, D.C.

Government projections indicate that number could double as a result of the new taxes, Resnick said.

Revenue from tobacco taxes goes into the federal government’s general fund, Resnick said. Congress approved the 62-cent tax increase to help fund an expansion of the Children’s Health Insurance Program. That program, jointly funded by states and the federal government, now provides health insurance coverage to almost 7 million low- and middle-income children, according to data from the U.S. Senate Finance Committee. The tax increase is expected to provide enough money to add 3.9 million more children, the committee reported.

In the latest fiscal year, Texas brought in $2.2 billion in revenue from state tobacco taxes, reported R.J. DeSilva, a spokesman for the Texas comptroller’s office in Austin.

“We’ll have to wait to see about any revenue impact from the federal tax increase,” DeSilva said in an e-mail. “But there is a general slow drop in cigarette consumption” due to higher prices and stop-smoking campaigns.

The Tax Foundation said congressional authorities estimated that cigarette sales would 10 percent, or 1.7 billion packs, because of the federal tax increase.

That decline will decrease tax revenues from cigarettes to states and local governments by more than $2 billion in fiscal year 2010, the Tax Foundation estimated.

Bill Phelps, a spokesman for Altria Group in Richmond, Va., said cigarette sales industrywide have been declining about 3 percent a year in the past 10 years.

The tax increase “will accelerate that decline,” Phelps said. However, sales of cigars and chewing tobacco have been increasing industry wide, he said.

Altria’s Philip Morris actually increased its cigarette market share slightly in the United States last year to almost 51 percent because of market gains from its Marlboro brand, the company recently reported.

“We opposed the tax increase,” he said. “We believe it will increase unemployment in the tobacco industry as well as associated industries, and increase” the black market for cigarettes.

Source: Elpasotimes