Think tank warns against raising cigarette taxes

Think tank warns against raising cigarette taxes
(Source: Pixabay/stock image)

By Andrew Gionfriddo

Capital News Service

RICHMOND - A new study says local cigarette taxes have adverse effects on low-income citizens and small business owners and rarely raise as much money as government officials project.

The Thomas Jefferson Institute for Public Policy released the study, which was funded by Philip Morris USA, as the Richmond City Council considers Mayor Levar Stoney’s proposal to impose a local cigarette tax of 50 cents per pack.

“Raising cigarette taxes is not a ‘cure-all’ for resolving budget problems,” Michael W. Thompson, the institute’s chairman, said. He said the study found:

  • Over the years after raising cigarette taxes, jurisdictions rarely meet their revenue projections.
  • While it is common for the tax increase to produce more income for the locality in the first year, the income tends to decrease in following years.
  • When cigarette taxes increase, convenience stores and smaller grocery stores see their overall sales on non-tobacco items decrease.

Virginia imposes a cigarette excise tax of 1.5 cents on each cigarette, equating to 30 cents per pack and $3 per carton. Over 90 localities in the commonwealth impose a local cigarette tax.

Stoney said a tax of 50 cents per pack on cigarettes would yield $3 million a year in additional revenue for the city budget. His proposed levy is between the 22-cents-per-pack tax in Ashland and the $1.26-per-pack tax in Alexandria.

Councilman Parker Agelasto proposed an 80-cents-a-pack cigarette tax last year that did not pass, and which the mayor did not support.

“The counties surrounding Richmond have not changed their cigarette taxes so they will be the big winners if City Council adds 50 cents to a pack of cigarettes,” Thompson wrote in a column in the Richmond Times-Dispatch.

Henrico and Chesterfield County do not currently impose a local cigarette tax.

Cigarette taxes by state.
Cigarette taxes by state. (Source: Capital News Service)

Thompson said the tax increase would hinder small businesses in multiple ways.

“Smokers will seek out the best prices for cigarettes, and those will be found a few blocks away in Henrico or Chesterfield counties,” Thompson said.

The Thomas Jefferson Institute’s report cites 2014 data from the National Association of Convenience Stores, drawn from over 3,400 shopping visits to such businesses.

Management Science Associates, a database management company, estimated tobacco was the fourth most often purchased item, with tobacco purchases made on 21% of the visits, according to the report.

The study showed that cigarette smokers visit convenience stores more frequently than nonsmokers and are more likely to buy products such as gasoline and beverages.

Thompson testified before the City Council last year when it was considering raising the cigarette tax.

“I gave them the documents and made my pitch, and they said, ‘Thank you very much - we’ll read it later.’ They’re disparaging the small guy.”

The Thomas Jefferson Institute says its data also shows lower-income citizens suffer the most from the tax increase.

Using data from the U.S. Bureau of Labor Statistics, the institute noted that households earning less than $10,000 per year in the South spend 5.8 percent of their income on tobacco, while households in the same region earning more than $70,000 annually spend only .26 percent of their income on tobacco products. That’s $580 versus $182, respectively.

The Virginia Department of Health study, “Virginia Adult Tobacco Survey 2016-2017,” determined that in Virginia, “the greatest percentage of smokers earn the least amount of money.”

Some local business owners have mixed feelings about the cigarette tax increase.

R.E. Watkinson, owner of Lombardy Market in Richmond, said he is not against raising the tax.

“Of course it’s part of the business, but I don’t want my grandparents or other kids smoking,” Watkinson said.

Watkinson does not think the tax would affect the habits of people who already smoke. “People who are addicted are still going to smoke,” he said.

Watkinson said that when he opened his store, cigarettes accounted for about half of all sales. Now, he estimates they make up around 10%.

He said he believes the cigarette tax would slow down the rate of new smokers. Smoking as a whole has been decreasing nationally, but not in Virginia.

The commonwealth’s relationship with tobacco dates to colonial times. Altria and its Philip Morris USA subsidiary, which produces Marlboro and other cigarette brands, is based in Henrico County.

“Tobacco is such a huge part of Richmond’s history and economy,” said Stephen Hader, a senior fellow with the Thomas Jefferson Institute. “I think Richmond adopting a tobacco tax would have some symbolic impact as well.”

Despite its long history with tobacco, Virginia has been at the forefront of a national push to decrease teenage usage of vaping and tobacco products.

On July 1, Virginia will raise from 18 to 21 the legal age to purchase tobacco and nicotine products.

More than 10 other states have adopted or plan to enact similar laws, according to tobaccofreekids.org.

E-cigarettes such as Juul are currently not taxed by the city or state.

Capital News Service is a program of Virginia Commonwealth University’s Robertson School of Media and Culture. Students in the program provide state government coverage for a variety of media outlets in Virginia.