Proposition 56 Spells a 230% Increase in Cigarette Tax for California’s Smokers

By Ivan Srsen Posted January 13, 2017

Prop 56 California Cigarette Tax

 

On November 8, California voters decided to say a firm ‘yes’ to Proposition 56, which will increase the excise tax on cigarettes and other products containing nicotine by a hefty margin. The state of California, which had one of the lowest taxes on cigarettes, will introduce a new tax rate of $2.87 per pack starting April, 1st 2017. This measure includes other tobacco products and even encompasses electronic cigarettes, which, up until this point, were only subject to a sales tax. Prop 56, passed by 63.8% of the voters, brings a $2 tax increase per pack – the biggest one since its introduction back in 1959.

 

History of Cigarette Excise Tax in California

 

California currently has one of the lowest average prices per pack of cigarettes. Unbranded cigarettes cost around $4, while a pack Marlboro will set you back $5.5. Once the tax increase goes into effect, cigarettes will probably cost as much as a burger combo in a fast food restaurant, which means somewhere north of $7 for Marlboro (the average price being around $5.5).

 

California has only seen small, incremental increases in cigarette tax up to now. From 1959 until 1967, the tax was ¢3, increasing in 1967 to ¢7. In total, between 1959 and now, cigarette tax increased by only ¢84. That makes this $2 increase a considerable hike.

 

What Does This New Cigarette Tax Mean for Smokers

 

This rather obvious (and substantial) increase in price per pack now gives California’s smokers a better incentive to quit. In high-income countries, once the cigarette tax goes up by 10% it’s usually followed by a 4% dip in the number of smokers. If it were up to statistics only, this means that California would be left with just a handful of smokers after April 1st.

 

Unfortunately, that’s a stretch, to say the least. Some of California’s 11.7% smokers will certainly see this as an incentive to quit, but not as many as we would like to hope. Although California has one of the lowest smoking rates in the country, the fact remains that the majority of those smokers are adults with low income. More than half of them (62%) attempted to quit in the last year alone, so it’s obviously not an easy feat. Some experts are concerned that this rise in cigarette tax will force them to choose between a meal and a pack of cigarette, and addicts are not known for their rational choices. This might lead to a marginalized group of people being even more discriminated against (at least, this is how this hike will be perceived by them).

 

Where Will the Tax Money Go?

 

Increase in tax revenue flowing from this measure is estimated at $1.7 billion (amount reflects 5 quarters of revenue). Some of the money will be used to plug budget holes caused by the decrease in cigarette sales. However, the bulk of it will go towards subsidizing health care for low-income Californians. Medi-Cal is expected to receive additional $1.3 billion in that period, and further $130 million will be invested in the state’s smoking prevention and cessation programs. While that amount seems rather exorbitant, when we take into consideration the number of smokers in California, it only comes to about $30 per capita. With cessation cost estimates ranging from a couple of hundred to a couple of thousands of dollars per person, $130 million, put into perspective, don’t seem as that much money at all.

 

While voters in California supported Prop 56, some other states oppose raising cigarette taxes. A poll conducted by Citizen Voices asked participants if New Hampshire “should raise the tax on cigarettes to help fund health care services?”. A large majority of respondents did not support raising taxes on cigarettes to help fund health care services.

 

Be that as it may, cigarette smokers (and consumers of other tobacco-related products and nicotine) should start getting ready for April 1st, 2017, when their life-threatening habits will also start to make a significant dent in their overall finances.