US: Obama''s Tobacco Tax Proposal ''Unfair'', Unlikely to Succeed

Source from:  Tobacco Reporter  04/12/2013

President Obama's proposal to impose the biggest-ever increase in the U.S.' federal cigarette tax to fund preschool programs has been condemned by the National Association of Tobacco Outlets (NATO).

"For the president to target a minority of adult Americans with this massive tax increase to pay for the extension of preschool programs nationwide is unfair and ironic," said Tom Briant, executive director of NATO.

"With the Centers for Disease Control reporting that 29 percent of all smokers have incomes below the poverty level, it is ironic that the president's proposal would seek to nearly double cigarette and tobacco taxes that fall more heavily on lower income Americans to fund expanded access to pre-kindergarten programs for all four-year-old children from families with low to moderate incomes."

The proposal unveiled by the president yesterday would increase the current federal cigarette tax from $1.01 per pack to $1.95 per pack, increase proportionately taxes on other tobacco products such as cigars, pipe tobacco and smokeless tobacco, and index tobacco taxes for inflation after 2014.

"With cigarette sales declining year to year, the stability of this funding source is unreliable and therefore will likely not produce the $78 billion dollars the president needs to fund the preschool education program over the next decade," said Briant.

"If pre-school education is important to the president, a better, more stable source of funding should be identified because the country can no longer depend on tobacco taxes to solve the country's problems."

In 2009, the president signed into law what was then the single-largest increase in the federal cigarette tax, which took it from $0.39 to $0.62 per pack, NATO said in a press note.

According to a 2012 Federal Trade Commission report, cigarette sales declined by 10 percent nationwide in 2009 and by three percent in 2010.

NATO said that the proposed tax increases could result in even heavier declines in sales.

And Briant warned that the proposed increases would, if passed into law, seriously impact retailers that sell tobacco products.

"For specialty tobacco stores that sell primarily tobacco and tobacco-related products, a sales decline greater than what occurred in 2009 to 2010 would be destructive to their businesses and result in store closures and employees losing their jobs," he said. "For convenience stores that rely on 35 to 40 per cent of their in-store sales from tobacco products, these higher taxes would also spell sales losses and job curtailment."

However, Bonnie Herzog, managing director of Beverage, Tobacco & Consumer Research at Wells Fargo Securities, said that, for two reasons, the proposal seemed to have a low chance of passing in its current form. First, House Republicans, who tended to oppose tax increases, were more prominent in Congress now than they were in 2009 when the last federal tobacco tax increase was passed.

And second; the tax would unfavorably impact some of the more vulnerable income populations, such as households with moderate-to-low incomes. Enditem