The greatest friend of big business is big government. Thanks to apparent backroom dealings with Colorado Democrats, big tobacco and big government are poised to win big in Colorado with the passage of the state’s new cigarette, tobacco, and nicotine taxes. Small business and the poor come out the losers.
Last week, The Colorado Sun reported on emails they obtained through a Colorado Open Records Act (CORA) request, which revealed that top aides to Democrat Governor Jared Polis negotiated privately with Altria, one of the world’s largest cigarette, tobacco, and nicotine companies, to help ensure passage of the tax hike. The meetings were evidently prompted by the Governor’s office in a bid to prevent Altria from opposing the proposed new taxes.
It may be counterintuitive that a massive tax increase on a companies’ products could lead to higher profits, but a provision of HB20-1427—inserted in the bill as a result of this apparent deal between Altria and Colorado Democrats—is set to yield handsome benefits for big tobacco potentially at the expense of smaller competitors. Emails suggest that Polis’ office agreed to include a price floor on every pack of cigarettes sold in Colorado. The price floor creates a huge market advantage for tobacco giants who sell more expensive, higher-end products.
In exchange, according to the emails, Altria remained politically neutral on the tax increase, which appeared on the November ballot as Proposition EE.
This quid pro quo eliminated one of the largest obstacles to statewide tax increases on cigarettes, tobacco, and nicotine proposed in past years. Altria has spent millions of dollars in the past to defeat proposed tax increases on their products in the state.
In an email obtained by The Sun, Cary Kennedy, a senior adviser to Polis, observed that a $7 price floor on cigarettes “literally writ[es] into state statute something that creates a Colorado monopoly for higher-end Altria products.” Top Democrat consultant Craig Hughes added, “It’s like forcing our Honda to sell for the same amount as a Mercedes,” and that the price floor “seems to be a distinct competitive advantage for Altria.”
These Democrat staffers evidently recognized that big government policies tend to crowd out smaller competitors and help create monopolies for big business. As with automobiles or just about any other industry, companies in the cigarette industry compete for market share among those interested in their products—in this case, smokers.
In Colorado, small businesses compete with larger companies by offering lower-end cigarettes for a lesser price. By requiring all sellers to charge a minimum of $7 per pack, the government has all but assured demand for a pack only worth $3 or $4 will disappear. This spells disaster for discount cigarette brands and the lower income smokers who count on these more affordable products. If law prevents car manufactures from charging less than $80,000 for a vehicle, why buy a Honda? You might as well get a Mercedes.
Governor Polis and Colorado Democrats apparently had no qualms crawling in bed with big business to create bigger government and raise taxes on the poor. After the negotiations revealed in the CORA’d emails, the price floor provision was added to the bill, which then sailed through the Democrat-controlled House and Senate with ease.
The Democratic state lawmakers who sponsored and backed the measures refused to comment to The Sun on the legislation or the price floor, but I had the opportunity to debate one of the bill’s prime sponsors, Representative Julie McCluskie, over the measure on the Aaron Harbor show last October.
On the issue of the price floor, I prophetically noted in that debate, “This is not some battle against big tobacco. This is big government getting in bed with big tobacco.” If my experience as a policy staffer in the United States Senate taught me anything, it’s that big business loves big government. They may be the most common bedfellows in politics.
In response, Representative McCluskie assured us that the measure “was put together not in some dirty deal.” We now know that’s not true.
After spending millions of dollars year-after-year fighting tax increases by power and money hungry Democrats, it should be no surprise that a company like Altria would come to the bargaining table to protect their business and the livelihoods of the thousands of people they employ. Any rational individual or business would do the same.
What’s most telling about The Sun story is how willing big government Democrats are glad to help big business at the expense of small competitors and the poor so long as it allows them to raise taxes and expand government.
The new law will increase taxes by about $170 million annually. According to Colorado Department of Revenue data, the tax on cigarettes and tobacco is the most regressive state-level tax imposed. In other words, the burden of these types of taxes falls most heavily on the lowest earners. This deal will cause that disparity to grow and make our tax code even more unfair, and it’s only one of three highly regressive new taxes backed by the state’s Democrats in 2020.
Also as a result of this deal, family-owned Colorado-based small businesses like Smoker Friendly will struggle while international tobacco behemoths have the opportunity to expand their market share in Colorado.
Big government has an unfortunate propensity to prop up big business at the expense of the small guy and to make life harder for low earners through regressive taxation.
Our elected officials appear to care more about growing government than they care for local businesses and the poor. Unfortunately, that seems to be the new normal for Colorado Democrats.
Ben Murrey is fiscal policy director for the Independence Institute, a free market think tank in Denver.