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Desperate Tobacco Companies Become Increasingly Deceptive in Fighting Cigarette Tax Increases

Statement by William V. Corr Executive Director, Campaign for Tobacco-Free Kids
May 09, 2003

Washington, D.C. — It's no coincidence that the Lorillard Tobacco Company today launched a deceptive advertising campaign against cigarette tax increases on the same day that its parent company, Loews Corp., announced reduced first quarter earnings, in part due to reduced cigarette sales. The tobacco companies are resorting to increasingly desperate and deceptive scare tactics to fight state cigarette tax increases because cigarette tax increases are working as predicted to reduce smoking, and that is hurting the tobacco companies' bottom line. States should ignore the tobacco companies' misleading arguments and put kids first by increasing cigarette taxes.

Lorillard's ads, which are running in Delaware, New Jersey and Pennsylvania, argue that cigarette tax increases lead to increased crime and cigarette smuggling, especially in New York City. Meanwhile, R.J. Reynolds is running ads in several states that argue cigarette taxes are unfair and smokers already pay more than their fair share in taxes. The tobacco companies are wrong on both counts.

Contrary to Lorillard's claim that New York City's $1.50 per pack cigarette tax increase, which took effect July 1, has not delivered the expected revenue benefits, New York City revenue data shows the cigarette tax increase will produce more than a quarter of a billion dollars in new revenue this year. In addition, while some cigarette smuggling and other tax avoidance practices are inevitable in the wake of large cigarette tax increases, studies have shown that such practices account for only a small percentage of cigarette sales nationwide. Not surprisingly, the only study cited by Lorillard to support its claims is by a tobacco industry-funded front group, the Small Business Survival Committee. The study was funded by Philip Morris, the nation's largest tobacco company. The tobacco industry used the same tactic of funding front groups and false science back when it was still denying that cigarette smoking causes cancer and is addictive. The industry's arguments today about cigarette taxes deserve to be taken no more seriously than those old health deceptions.

The answer to the problem of cigarette smuggling and tax avoidance is not to reduce cigarette taxes, but to strengthen and better enforce laws against smuggling and for the few states that still have incredibly low cigarette tax rates of only a few pennies per pack to increase them. If Lorillard is serious about reducing cigarette smuggling, it should join public health groups in urging those states with very low cigarette taxes to increase their tax rates and in supporting strong federal legislation to minimize cigarette smuggling and tax avoidance. But that wouldn't be good for Lorillard's bottom line, which is all that matters to the company.

The tobacco industry also persists in arguing that smokers are being unfairly taxed. In fact, low tobacco taxes are unfair to nonsmokers who must help pick up the tab for tobacco-caused health care costs. Currently, the average total federal and state cigarette tax is less than $1.10 per pack. In contrast, the Centers for Disease Control and Prevention estimates that each pack of cigarettes sold costs the nation $7.18 in smoking-caused health care bills and productivity costs. The CDC estimates total annual public and private health care expenditures caused by smoking at more than $75 billion. This amount includes $23.5 billion under Medicaid, a program whose increasing costs have contributed significantly to state budget deficits. Smoking-caused government health care spending amounts to $550 per household per year. Clearly, current state cigarette taxes revenues do not come close to matching the massive smoking-caused costs that burden every state.

Since January 1, 2002, 28 states, the District of Columbia and Puerto Rico have approved or implemented cigarette taxes, and many more states are considering increasing their cigarette taxes this year. State legislators and governors know that cigarette taxes are a win-win-win solution that reduces smoking among both kids and adults, raises much-needed revenue to balance budgets and funds essential government services, and are popular with voters. Historically, every single state that has significantly increased its cigarette tax has enjoyed substantial new revenues, while reducing smoking and related health care costs. Preliminary evidence from states that have recently increased their cigarette taxes show that they are also enjoying these same benefits.

But cigarette tax increases are bad news for tobacco companies' bottom lines. The major tobacco companies in recent months have reported reductions in cigarette sales and earnings, which they themselves have attributed in large measure to cigarette tax increases. For example, R.J. Reynolds' CEO Andrew J. Schindler said in an April 25, 2003, company press release, 'RJR's profitability continues to be adversely affected by the growth of deep-discount brands, high levels of competitive promotion spending, and the effects of state cigarette excise tax increases.' So it's no wonder that the tobacco industry is pulling out all the stops to defeat state cigarette tax increases.

Tobacco use is the leading preventable cause of death in the United States, killing more than 400,000 people every year. Ever day, another 2,000 kids become daily smokers, one-third of whom will die prematurely as a result. Despite self-serving tobacco industry claims to the contrary, cigarette tax increases remain an important – and proven – part of the solution to this public health crisis.