New tobacco tax causes sales to plunge
Tobacco sales nose-dived this spring when a $2 tax was added as the implementation of Proposition 56 kicked in at the start of April.
Prop. 56 passed in November with two thirds approval but did not take effect until spring.
Yet revenue from new taxes was down 64 percent in May compared to a year earlier, according to the Legislative Analyst’s Office report of July 7.
The office provides nonpartisan fiscal and policy advice from a 43-member staff reporting on health, state finance and other topics.
The higher tax has impacted purchasers buying habits. At the shopping plaza on South Fourth Street and Ross Avenue in El Centro, Larry Michael of Seeley stopped off to buy some cigars.
“I’m not much of a smoker but I like a cigar once in a while,” he said. “Prices went up about $1 a cigar a year ago, so I’ve cut back a little bit.”
At the same plaza Isaac Manjarrez, a sound technician for the band La Cachimba, who usually smokes Marlboro Red has switched to the Kent brand because they are cheaper he said. “I’m buying less cigarettes,” said Manjarrez. “I used to buy two packs a day, but now, I buy maybe two or three packs a week.”
The analyst’s office also said it was uncertain if the drop was temporary or how much of it will be permanent.
It added that whatever the drop from pre-Prop. 56 tax revenues, that revenues will likely increase through June 2018. Prop. 56 alone is estimated to generate $1.4 billion.
Proponents of the tax hike contended the $2 rise would be ample pain to prompt millions of smokers to quit, noted CALmatters a nonpartisan nonprofit media venture that explains public policy.
The average state price of cigarettes has gone from $6 to $9 a pack noted a CALmatters report. Early data infers the intended effect is working with a sales drop far sharper than the state anticipated. But it also means far less revenue for the state’s treasury. Cigarette pack distributions, usually packs sold from wholesalers to retailers, dropped 56 percent in the two months the tax was in effect.
“I’ve felt for a long time we’re getting to the point in California where smoking is so low that a couple of good shoves like this one, we might be rid of it,” said Dr. Stanton Glantz, researcher at University of California, San Francisco’s Center for Tobacco Control Research and Education.
But he cautioned it is too early to assume conclusions.
But data tracked from the two months preceding the tax hike, distributors and smokers were amassing huge reserves of cigarettes.
Distributors sold 104 million packs in March, by far the most of any monthly total for two years, noted CALmatters.
But for some long time smokers, they will adjust to what the market bears. Katy Aragon, owner of Pretty Kitty Hair Salon on Main Street keeps a jar of “fun money” in her shop to buy her pack. “It makes me upset because they got so expensive I can barely afford to break into my jar,” she said.
Customer Brian Dickens, with a fresh haircut from Aragon’s shop paused outside to enjoy a smoke. “It (tax) made me angry but my dad gave me the idea to buy cigarettes in Mexicali,” he said. “They’re $2.70 to $3 a pack and I go three times a month to get about 15 packs. They used to be kind of harsh but they’re much smoother now.”
Revenues from Prop. 56 are intended to bolster Medi-Cal, the state’s medical assistance program for low-income residents.
But in the two months the tax hike was in effect the state raised just $182 million, below the Brown administration’s expectations.
Yet savings are likely to mount from lower health care costs as more quit smoking.