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Largest federal tobacco tax increase ever to take effect Wednesday

Monday, March 30, 2009

Carolyn Kaster ~ Associated Press
An employee smokes a cigarette June 3 at Morgan's Place bar and restaurant in Harrisburg, Pa. Tobacco users are facing a big hit this week from a new tax.
WASHINGTON — However they satisfy their nicotine cravings, tobacco users are facing a big hit as the single largest federal tobacco tax increase ever takes effect Wednesday.

Tobacco companies and public health advocates, longtime foes in the nicotine battles, are trying to turn the situation to their advantage. The major cigarette makers raised prices a couple of weeks ago, partly to offset any drop in profits once the per-pack tax climbs from 39 cents to $1.01.

Medical groups see a tax increase right in the middle of a recession as a great incentive to help persuade smokers to quit.

Tobacco taxes are soaring to finance a major expansion of health insurance for children. President Obama signed that health initiative soon after taking office.

Other tobacco products, from cigars to pipes and smokeless, will see similarly large tax increases, too. For example, the tax on chewing tobacco will go up from 19.5 cents per pound to 50 cents. The total expected to be raised over the 4 1/2-year-long health insurance expansion is nearly $33 billion.

Smokers are mulling their options.

Standing outside an office building in downtown Washington last week, 29-year-old Sam Sarkhosh puffed on a Marlboro Light. His 8-year-old daughter has been pleading with him to quit, he explained, and he has set a goal to give up smoking by his 30th birthday.

"I'm trying to quit smoking, and it could help," said Sarkhosh, an information systems specialist. "I don't think it will stop me from buying cigarettes every now and then, but definitely not as often." A friend who smokes Camels went out and bought four cartons in advance, he said.

The tax increase is only the first move in a recharged anti-smoking campaign. Congress also is considering legislation to empower the Food and Drug Administration to regulate tobacco. That could lead to reformulated cigarettes. Obama, who has agonized over his own cigarette habit, said he would sign such a bill.

Prospects for reducing the harm from smoking are better than they have been in years, said Dr. Timothy Gardner, president of the American Heart Association. The tax increase "is a terrific public health move by the federal government," he said. "Every time that the tax on tobacco goes up, the use of cigarettes goes down."

About one in five adults in the United States smokes cigarettes. That's a gradually dwindling share, though it isn't shrinking fast enough for public health advocates.

The Centers for Disease Control and Prevention says cigarette smoking results in an estimated 443,000 premature deaths each year, and costs the economy $193 billion in health care expenses and lost time from work. Smoking is a major contributor to heart disease, cancer and lung disease.

Public health officials are urging individual doctors and staff at telephone "quit lines" in every state to make the most of the tax increase by reaching out to smokers. But it's unclear how deeply the tax will cut into tobacco consumption.

Eric Lindblom, research director for the Campaign for Tobacco-Free Kids, says he expects a drop of at least 6 percent to 7 percent among young smokers.

Philip Gorham, who tracks the tobacco business for Morningstar, the investment research firm, said he expects an overall drop of 4 percent to 5 percent this year. What happens after that is less certain, especially as the economy recovers.

"I would expect a road bump this year," said Gorham. "But these companies will still be extremely profitable. I still think they will make their return on capital by wide margins in the long run."

Philip Morris USA, the largest tobacco company and maker of Marlboro, is forecasting a drop, but spokesman Bill Phelps said he cannot predict how big. Philip Morris raised Marlboro prices by 71 cents a pack early this month, and prices on smaller brands by 81 cents a pack. Other major companies followed suit.

The pricing moves raised eyebrows. "That's nothing more than greed," said Kevin Altman, an industry consultant who advises small tobacco companies. "They weren't required to charge that until April 1. They are just putting that into their pockets."

Responded Phelps: "We raised our prices in direct response to the federal excise tax increase, and people who are upset about that should find out how their member of Congress voted, and contact him or her."

Some policy analysts have questioned the wisdom of boosting tobacco taxes to finance health care for children. They argue that the fate of such a broad program should not depend on revenue derived from a minority of the adult population, many of whom have low incomes and are hooked on a habit. The tobacco industry is also warning that the steep increase will lead to tax evasion through old-fashioned smuggling or by Internet purchase from abroad.

But smoking control advocates such as Lindblom say tobacco taxes should be even higher. "There's a lot of room to go after cigars and smokeless," he said. "We are certainly hopeful that health care reform will include some more increases."

Standing outside a Washington department store, attorney Margaret Webster, 42, puffed on a Marlboro Ultra Light and lamented the fact that the government is reaching deeper into her pocketbook.

"I don't think we (smokers) like it," she said. "But I've heard so many people say they were going to quit when the price went up ... and they're still smoking."


On the Net:

New tobacco tax rates: http://tinyurl.com/bt9c32

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First let me say I dont smoke. but I believe its a right that we fought for to smoke or not to smoke. just like to vote or not to vote. to have gun's or not to have gun's but seems like are Great America has forgot that an is telling us what we can do, can have, raising the taxes dont help anyone quite get real all that does is pad the pockets for someone else. they say the tax is to off set health cost oh please we are not stupied it wont help a thing its not going to lower the cost to go to the doctor or get your meds. why do you think so many people dont see a doctor .all this is a smoke screen to get what is really needed worked on hide away. jobs that pay anough to make the bills, take care of your familys, be able to go to school an send your kids. give us back our rights an big brother get out of my personal business.

-- Posted by Rights on Mon, Mar 30, 2009, at 7:19 PM


Do you believe that someone should be allowed to do heroin?

-- Posted by grandma73 on Mon, Mar 30, 2009, at 11:06 PM

One of the oddest things about this (aside from the fact that no one who voted on the tobacco tax increase to pay for increased SCHIPP coverage seemed to realize that they're going to need millions more smokers in order to keep financing the program) is that no one considered using tobacco taxes to provide some help for smokers to quit. That might have made some sense--if anyone in government really wants everyone to quit.

But then ... eliminating smoking would create a huge scramble for the lost millions in taxes. I'm looking forward to the day when a lawmaker comes up with a plan to levy excess taxes on obesity to help pay for health care and compensate for lost tobacco taxes. Imagine the outcry then! Just a slight tongue-in-cheek comment ...

-- Posted by gurusmom on Mon, Mar 30, 2009, at 11:19 PM

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