Federal tobacco tax in effect Wednesday

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WASHINGTON (AP) – However they satisfy their nicotine cravings, tobacco users are facing a big hit as the single largest federal tobacco tax increase ever takes effect Wednesday.

Tobacco companies and public health advocates, longtime foes in the nicotine battles, are trying to turn the situation to their advantage. The major cigarette makers raised prices a couple of weeks ago, partly to offset any drop in profits once the per-pack tax climbs from 39 cents to $1.01.

Medical groups see a tax increase right in the middle of a recession as a great incentive to help persuade smokers to quit.

Tobacco taxes are soaring to finance a major expansion of health insurance for children. President Barack Obama signed that health initiative soon after taking office.

Other tobacco products, from cigars to pipes and smokeless, will see similarly large tax increases, too. For example, the tax on chewing tobacco will go up from 19.5 cents per pound to 50 cents. The total expected to be raised over the 4 1/2 year-long health insurance expansion is nearly $33 billion.

Smokers are mulling their options.

Standing outside an office building in downtown Washington last week, 29-year-old Sam Sarkhosh puffed on a Marlboro Light. His 8-year-old daughter has been pleading with him to quit, he explained, and he has set a goal to give up smoking by his 30th birthday.

“I’m trying to quit smoking, and it could help,” said Sarkhosh, an information systems specialist. “I don’t think it will stop me from buying cigarettes every now and then, but definitely not as often.” A friend who smokes Camels went out and bought four cartons in advance, he said.

The tax increase is only the first move in a recharged anti-smoking campaign. Congress also is considering legislation to empower the Food and Drug Administration to regulate tobacco. That could lead to reformulated cigarettes. Obama, who has agonized over his own cigarette habit, said he would sign such a bill.

Prospects for reducing the harm from smoking are better than they have been in years, said Dr. Timothy Gardner, president of the American Heart Association. The tax increase “is a terrific public health move by the federal government,” he said. “Every time that the tax on tobacco goes up, the use of cigarettes goes down.”

About one in five adults in the United States smokes cigarettes. That’s a gradually dwindling share, though it isn’t shrinking fast enough for public health advocates.

The Centers for Disease Control and Prevention says cigarette smoking results in an estimated 443,000 premature deaths each year, and costs the economy $193 billion in health care expenses and lost time from work. Smoking is a major contributor to heart disease, cancer and lung disease.

Public health officials are urging individual doctors and staff at telephone “quit lines” in every state to make the most of the tax increase by reaching out to smokers. But it’s unclear how deeply the tax will cut into tobacco consumption.

Eric Lindblom, research director for the Campaign for Tobacco-Free Kids, says he expects a drop of at least 6 percent to 7 percent among young smokers.

Philip Gorham, who tracks the tobacco business for Morningstar, the investment research firm, said he expects an overall drop of 4 percent to 5 percent this year. What happens after that is less certain, especially as the economy recovers.

“I would expect a road bump this year,” said Gorham. “But these companies will still be extremely profitable. I still think they will make their return on capital by wide margins in the long run.”

Philip Morris USA, the largest tobacco company and maker of Marlboro, is forecasting a drop, but spokesman Bill Phelps said he cannot predict how big. Philip Morris raised Marlboro prices by 71 cents a pack early this month, and prices on smaller brands by 81 cents a pack. Other major companies followed suit.

The pricing moves raised eyebrows. “That’s nothing more than greed,” said Kevin Altman, an industry consultant who advises small tobacco companies. “They weren’t required to charge that until April 1. They are just putting that into their pockets.”

Responded Phelps: “We raised our prices in direct response to the federal excise tax increase, and people who are upset about that should find out how their member of Congress voted, and contact him or her.”

Some policy analysts have questioned the wisdom of boosting tobacco taxes to finance health care for children. They argue that the fate of such a broad program should not depend on revenues derived from a minority of the adult population, many of whom have low incomes and are hooked on a habit. The tobacco industry is also warning that the steep increase will lead to tax evasion through old-fashioned smuggling or by Internet purchase from abroad.

But smoking control advocates such as Lindblom say tobacco taxes should be even higher. “There’s a lot of room to go after cigars and smokeless,” he said. “We are certainly hopeful that health care reform will include some more increases.”

Standing outside a Washington department store, attorney Margaret Webster, 42, puffed on a Marlboro Ultra Light and lamented the fact that the government is reaching deeper into her pocketbook.

“I don’t think we (smokers) like it,” she said. “But I’ve heard so many people say they were going to quit when the price went up … and they’re still smoking.”

4 Responses to Federal tobacco tax in effect Wednesday

  1. zack
    March 30, 2009 at 10:37 pm

  2. I am seriously concerned about this, because poor people are going to smoke anyway. Criminal activities are going to increase. Children are going to be going without food, clothing and shelter. More utilites are going to be disconnected, more insurances not paid. More violent crimes are going to happen. I would much rather have seen a $1.00 increase on gas.

    Lori
    April 1, 2009 at 2:02 pm

  3. Lori! You are a fool! These horrible crimes are going to happen anyway, not simply because of the price of smokes! Smoking should be banned in public across the nation period and should be considered child abuse if you smoke near a child. Believe it that children are going without food anyway and it has absolutely nothing to do with tobacco!

    bart
    April 3, 2009 at 10:14 am

  4. Bart, you are an idiot. My husband have been working for a retail store that the mane source of income is tobacco products. SOOOOOOOO if people can not afford to buy them and they have to close the store then yes our daughter would go hungry, we would loose our house, his assistant manager would loose her truck. So yes it affects every body. I think that we should have the freedom to choose to smoke or not. I am a smoker and DO NOT smoke in my house or around my kid. I make sure that she knows that’s it is bad and she knows how addictive it is and that my husband and I are trying to quit. I also stand at my car when I have a smoke, I am a very polite person when I smoke.

    Brittany
    January 30, 2010 at 10:32 pm