Next tobacco war battlefield: Cigarette smuggling Health advocacy groups expect opponents to focus on cigarette smuggling

Alexis Bowles shows a "California Tax Paid" stamp on the bottom of a pack of cigarettes. Alexis Bowles shows a "California Tax Paid" stamp on the bottom of a pack of cigarettes. Photo: Leah Millis, The Chronicle Photo: Leah Millis, The Chronicle Image 1 of / 7 Caption Close Next tobacco war battlefield: Cigarette smuggling 1 / 7 Back to Gallery

Sacramento --

Interest groups long divided over the benefits of increasing the tobacco tax in California are digging in for another fight, with proponents submitting a proposal for a ballot measure and opponents signaling how they will wage the next cigarette war.

What can voters expect? A lot of talk about cigarette smuggling.

The black market for cigarette trafficking in the United States surfaced, in part, as a result of varying tax rates among states. Smugglers purchase large quantities of tobacco products in states with low tax rates and resell them in states with higher taxes for a profit, according to the Bureau of Alcohol, Tobacco, Firearms and Explosives, which investigates such cases.

That's a costly problem in California, where the average cost of a pack of cigarettes is $5.44, which includes an 87-cent state tobacco tax, a $1.01 federal tobacco tax and a 39-cent state sales tax. The state loses an estimated $182 million in revenue from cigarette smuggling each year, according to the State Board of Equalization, which collects the tobacco tax and investigates smuggling.

Discord over take hike

The effects of increasing the tobacco tax by $2 per pack, as is being proposed in California, are highly disputed.

According to a study released last month by an affiliate group of the California Chamber of Commerce, a $2 increase would double smuggling rates in the state to almost 40 percent of cigarettes consumed.

The group, California Foundation for Commerce and Education, estimated that the Bay Area alone would lose $4.7 million in local sales tax revenue and 2,900 retail jobs if cigarette smuggling increased.

Proponents of the tax dismiss the warnings as propaganda.

"These are the same lies as before that never came true," said Mike Roth, a spokesman for the cigarette tax ballot proposal, which was submitted last month and is pending in the attorney general's office. If approved, the measure would need 504,000 signatures to qualify for the 2014 ballot. Roth said the proposal would fund new cancer research and discourage current and future smokers from the habit.

Tax unchanged since 1998

Although there have been numerous efforts to increase California's tobacco tax, the rate has not changed since 1998. The national average for a state cigarette tax is $1.53. New York leads the country with a $4.35-per-pack tobacco tax.

ATF estimates that smugglers could net up to $23,000 on a carload of 10 cases of cigarettes, particularly on the East Coast where neighboring states have drastically different tobacco taxes. The revenue is sometimes used to fund other criminal activities, the ATF wrote in a report on cigarette smuggling this year.

"That's part of what happens when you start increasing taxes," said state Senate Republican Leader Bob Huff, R-Diamond Bar (Los Angeles County). "There are people who believe a tax solves all problems. It creates more problems than it solves."

The current ballot proposal mirrors legislative efforts this year by state Sen. Kevin de Leon, D-Los Angeles, who sought to add a $2-per-pack tobacco tax for medical research. The bill was put on hold in the Senate, but the lawmaker intends to take it up again when the Legislature reconvenes in January. Like de Leon's bill, the ballot proposal has support from the California Medical Association, Service Employees International Union, American Cancer Society and the American Lung Association in California.

Marsha Ramos, chairwoman of the board of directors for the American Lung Association in California, said the current ballot proposal keeps "all options open" while de Leon's legislation is pending in the Senate.

Prop. 29 barely lost

Last year, a ballot measure to increase the tax on cigarettes lost by less than a percentage point. Proposition 29 would have increased the tax on cigarettes by $1 to raise $810 million a year for cancer research and antismoking programs. The loss came despite public polling showing support for increasing the tax on cigarettes.

Opponents, such as Philip Morris, spent almost $47 million in advertising to defeat Prop. 29 after arguing the tax created a new state bureaucracy and there were no guarantees the money would benefit California researchers. Proponents spent around $12 million touting the economic and health benefits of increasing the tobacco tax.

Richard Barnes, a researcher at UCSF's Center for Tobacco Control Research and Education, said he was surprised last year when Prop. 29 opponents did not concentrate on smuggling concerns during ad campaigns.

"It's an argument the tobacco industry usually makes," Barnes said. "The whole argument about cigarette smuggling is a red herring. It's just not a major factor. If you increase the tax by 2 bucks the state will see a huge revenue increase. ... Nothing bad comes out of a tobacco tax increase."

Danny McGoldrick, vice president of research for the Campaign for Tobacco-Free Kids, said research shows price increases are followed by declines in smoking.

"It's one of the best ways to decrease smoking," McGoldrick said. "That's why tobacco companies hate it so much. That's why they spend so much to defeat this. The reason they really oppose it is it decreases smoking."

Spending money elsewhere

McGoldrick said there will be some smuggling, but that the upside to the tax far outweighs what he called bloated estimates. The current ballot proposal allots $48 million in generated tax revenue to go toward law enforcement efforts to curb smuggling.

"Every state who has passed this tax has had an increase in revenue and decrease in smoking," McGoldrick said. "When people quit smoking, they still spend that money. This doesn't put convenience stores out of business."