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Tobacco Tax Follies

Opinion Editorial
September 29, 2004

By Linda Gorman

Amendment 35 imposes a 320 percent increase in state taxes on a pack of cigarettes. In what should be a clear warning to anyone who cares about good government, it simultaneously zaps TABOR restrictions and prohibits the legislature from overseeing how the money is spent.

Along with gutting legislative oversight, the Amendment guarantees that tax revenues will end up fattening the bank accounts of the special interests in the coalition that created it. Their estimated windfall will be about $170 million a year.

The federally subsidized Community Health Center operators will be big beneficiaries. Their trade association, the Colorado Community Health Network (CCHN), accepted $950,000 in a 2002 grant from the Robert Wood Johnson Foundation. In exchange, it was to work to increase the number of Colorado residents enrolled in Medicaid and its companion program, the Childrens Health Insurance Program (CHIP).

Naturally Amendment 35 also stipulates that 46 percent of revenues, about $ 80 million, be spent on projects to increase Medicaid and CHIP enrollment. This includes paying people to lobby the legislature to loosen eligibility rules. But enrollment is not the same as health care, and Amendment 35 does not say that its revenues can be used to pay actual doctor bills run up by Colorado Medicaid patients.

Those revenues go to CCHN members. Under Amendment 25 they pocket an additional $33 million a year even though they already get big federal subsidies and, due to a loophole in federal law, can stick Colorado taxpayers with their costs. They charge Colorado Medicaid about $130 for a basic visit. Private physicians get just $27. Even private urgent care centers only charge $100.

Members of the Colorado Tobacco Education and Prevention Alliance (CTEPA) also benefit. In 2001, it received $1,149,526 from the Robert Wood Johnson Foundations Smokeless States program in exchange for lobbying on tobacco law and policy. On its webpage it brags that it ensured that 15% of Colorados tobacco settlement funds were allocated to tobacco prevention.

Amendment 35 lavishes an estimated $70 million on the tobacco prevention and research programs pushed by CTEPA. If past experience is any guide, the funds will produce more redundant research that fattens CTEPA member payrolls. Past projects include $500,000 to the Colorado Foundation for Families and Children, a CEPTA member, for increase[ing] family interaction around anti-tobacco messages by distributing a book called The Berenstain Bears and the Sinister Smoke Ring to Colorados 4th graders.

According to Berenstain Bears project evaluators, Most students had strong negative smoking-related attitudes at the onset of the study, and these attitudes remained strong, but unchanged, throughout the completion of the program. Furthermore, most teachers and parents did not read the book or discuss it.

Another project rediscovered that smoking youths are more likely to have smoking friends at a cost of $617,581. Though all companies and nonprofits routinely try to build coalitions to block unfavorable legislation, taxpayers paid $58,160 to the Colorado chapter of the American Lung Association, a CEPTA member, to study whether tobacco companies do it too. Attempt to understand tobacco and alcohol use in college cost $691,581. Zebrafish: A Model for Nicotine Developmental Toxicity was granted $772,324.

Along with paying for such vital research, higher tobacco taxes are supposed to reduce smoking, as if Colorado smokers have no alternative to paying the tax. Amendment 35 advocate Citizens for a Healthier Colorado even claims that after substantial tax increases cross-border purchases generally fade as smokers go back to their usual habit of buying cigarettes at the corner store.

In fact, no pack a day smoker needs to pay an additional $20 a month given the alternatives available. It is unfair to expect him to. Smokers already pay about $0.32 more in taxes than they consume in public services. For smokers near the poverty level, the new tax amounts to 1 to 2 percent of annual income.

People faced with that kind of burden arent going back to the corner store. Not when neither Indian reservations nor international retailers collect state taxes and happily fill internet orders.

Criminals dont pay taxes either.  And unlike legal tobacco retailers, they have no incentive to obey the laws prohibiting the sale of tobacco to children.

Colorados relatively low tobacco tax keeps the lid on illegal profits. Raising it will expand them. In New York City, high tobacco taxes have expanded illegal profits. Illegal cigarettes are now sold by organized crime, terrorist groups, and street gangs. In 2002, U.S. Customs confiscated $300,000 in bogus New York tax stamps shipped from Paraguay to New York via Miami.

Amendment 35 ensures waste, taxes people with low incomes to enrich special interests, increases youth access to cigarettes, and encourages crime. Do we really need it in the Colorado Constitution?


The Independence Institute
13952 Denver West Parkway, Suite 400
Golden, CO 80401


INDEPENDENCE INSTITUTE is a non-profit, non-partisan Colorado think tank. It is governed by a statewide board of trustees and holds a 501(c)(3) tax exemption from the IRS. Its public policy research focuses on economic growth, education reform, local government effectiveness, and Constitutional rights.

JON CALDARA is the President of the Independence Institute.

LINDA GORMAN is the director of the Independence Institute’s Health Care Policy Center.

NOTHING WRITTEN here is to be construed as necessarily representing the views of the Independence Institute or as in attempt to influence any election or legislative action.

PERMISSION TO REPRINT this paper in whole or in part is hereby granted provided full credit is given to the Independence Institute.