Smokescreen? Big Tobacco Stands Down As Colorado, Oregon Hike Cigarette Taxes
While an increased tax means more state revenue, a disincentive for kids to smoke and a win for public health, the measure could also allow premium tobacco companies to gain market share.
Big Tobacco did something unusual in Marlboro Country last fall: It stood aside while Colorado voters approved the state’s first tobacco tax hike in 16 years.
The industry, led by Altria Group, one of the world’s largest tobacco companies, has spent exorbitantly in the past to kill similar state ballot initiatives. In 2018, Altria’s lobbying arm spent more than $17 million to help defeat Montana’s tobacco tax ballot initiative. That same year, it spent around $6 million to help defeat South Dakota’s similar measure.
And four years ago, Altria was the leading funder in a successful $16 million campaign to quash Colorado’s previous proposed tobacco tax increase.
In November, by contrast, Altria didn’t spend a penny in opposition and Colorado voters overwhelmingly approved the tax with two-thirds support. Likewise, in Oregon, Big Tobacco stayed on the sidelines while a tax hike passed there.
The tax measures are major wins for anti-smoking advocates after a string of defeats but, in an example of how politics makes strange bedfellows, Colorado’s tax might not have been possible without Altria’s help. And, advocates said, the way those measures passed could provide a blueprint for states to follow in future elections.
In Colorado, Altria, the parent company of Marlboro cigarette maker Philip Morris, insisted that a minimum price be included in the proposal, according to The Colorado Sun, citing emails between political consultants and Gov. Jared Polis’ office. So while supporters see an increased tobacco tax as more revenue for the state, a disincentive for kids to smoke and a win for public health, the measure could also allow America’s premium tobacco companies to gain market share.
The Colorado measure will increase the total state-levied tax from 84 cents to eventually $2.64 per pack by 2027. The tax rate on vaping products, not currently taxed, will be 30% of the manufacturer’s list price in 2021, gradually increasing to 62% by 2027. The proposition also set the minimum price per pack of cigarettes at $7 as of Jan. 1 and that floor rises to $7.50 in 2024. The change could effectively help premium cigarette companies corner the market, since discount cigarettes would rise to at least $7.
Discount cigarette companies Liggett Group, Vector Tobacco and Xcaliber International — which funded opposition to the tax initiative, Proposition EE — tried to sue the state over the minimum tax provision, alleging “Philip Morris will reap huge benefits from the new legislation” and the changes will “destroy their ability to compete in Colorado.” In December, a federal judge rejected the company’s request for a preliminary injunction. A spokesperson for Liggett said the company plans to appeal.
“When it came to entities like Altria and other stakeholders that we engaged in the legislative process, I think that they saw the writing on the wall,” said Jake Williams, executive director of Healthier Colorado and one of the key organizers behind Proposition EE. “And it helped us get through the legislative process, not just with Democratic votes, but Republican votes to refer the measure to the ballot.”
Altria officials said in a statement that their tobacco companies oppose excise tax increases, but they did not say whether they had worked with Colorado lawmakers.
“Altria did not advocate for or against Proposition EE, and after evaluating the content and intent of this measure, Colorado voters decided to vote in favor of it, some aspects of which were focused on tobacco harm reduction and may help transition adult smokers to a non-combustible future,” the statement said.
Polis’ office did not respond to a request for comment. The Colorado Attorney General’s Office said it would not comment on matters under active litigation. State Democratic Sen. Dominick Moreno and Rep. Julie McCluskie, both state sponsors for the legislation, declined to comment for the same reason. Fellow Democrats Rep. Yadira Caraveo and Sen. Rhonda Fields, also state sponsors for the legislation, did not respond to requests for comment.
Colorado campaign finance records show Altria and Altria’s lobbying arm in 2020 contributed to funds that support both Democratic and Republican candidates in the state — a pattern playing out nationally.
Williams said Altria’s absence of public opposition wasn’t the only factor in the initiative’s success. The tax revenue will initially fund revenue lost during the covid-19 pandemic, then fund tobacco use prevention and eventually preschool education.
The American Lung Association, which supported the Colorado measure, said it believes tobacco taxes are among the most effective ways to reduce tobacco use, especially among youths, who are more sensitive to changes in price. The organization cites studies that found every 10% increase in the price of cigarettes reduces consumption by about 4% for adults and 7% for teens.
“Without tobacco industry opposition, it’s very popular among the public,” Thomas Carr, the association’s director of national policy, said of the tax increase. “We’ve long seen it in polling on the subject.”
There was no major industry opposition to the Oregon increase, either. Its tobacco tax increase — Measure 108 — also got a resounding two-thirds of support. But Oregon didn’t negotiate with Altria lobbyists or set a minimum price provision, according to Elisabeth Shepard, campaign manager for Yes for a Healthy Future.
“I don’t know what the [Colorado] deal was,” Shepard said. “All I know is that before it even made it to the ballot, Altria indicated that they were not going to oppose the measure and stuck with their word.”
While Shepard worried until Election Day whether Big Tobacco would swoop in with opposition in Oregon, it didn’t. She believes her campaign worked because the effort had early resources and money, the tax was targeted to fund the Oregon Health Plan (the state’s Medicaid), and her campaign’s coalition had 300 endorsers, including those in health and business communities.
“We had the left, we had the right, we had the far-right, we had the far-left,” Shepard said.
Her campaign paid its advisory committee members, including representatives from affected communities such as Indigenous Oregonian tribes. At least 30% of American Indian and Alaska Native adults in the state smoke cigarettes. Oregon’s measure increases tobacco taxes $2 per pack, from $1.33 to $3.33, as well as creates a new tax for e-cigarettes. The revenues will help fund an estimated $300 million for the state’s health plan.
Altria did not respond to a request for comment about Oregon tobacco taxes, but the company has previously said it opposed Oregon’s measure.
Shepard believes her campaign model could work in other states. Other anti-smoking advocates took note of the 2020 election.
“We certainly support establishing minimum prices for all tobacco products in conjunction with tobacco tax increases, as we know increasing the price of tobacco products is one of the most effective ways to reduce tobacco use,” said Cathy Callaway, director of state and local campaigns for the American Cancer Society Cancer Action Network.
It could just come down to a state’s voters and its politics, according to Mark Mickelson, a former Republican in South Dakota’s legislature. Mickelson was behind creating his state’s failed 2018 tobacco tax ballot initiative.
“We just got beat,” Mickelson said. The opposition “got ahead of us on the message. They had a lot more money and had just played on doubts that the [tax revenue] money would go to tech ed.”
The average state cigarette tax is $1.88 per pack, but it varies across the country — as high as $4.35 in New York but only 44 cents in North Dakota, where a 2016 ballot initiative to increase that to $2.20 was defeated.
Tax increases can translate into hundreds of millions of dollars in new revenue for states, said Richard Auxier, senior policy associate at the nonpartisan Urban-Brookings Tax Policy Center.
“It’s a little easier to pass a tax on someone else, which is often how this is seen — passing this tax on smokers, rather than passing it on all working people, [compared to] if you were to increase income tax or … a sales tax.”
But not all voters get a say.
In Kentucky, which isn’t a referendum state, Republican state Rep. Jerry Miller said there’s not a lot of sympathy for tobacco companies anymore.
“The agriculture community, which used to be on the same page with cigarette companies, are now always in opposition because the cigarette companies are always trying to tweak their formula to use cheaper tobacco,” he said.
“We don’t have that tradition or the mechanism that somebody collects 10,000 signatures and they get a referendum on a ballot,” he said. “That’s why things like this have to go through the legislature — and so it really just depends on the state [government].”