Legislature(1997 - 1998)
02/10/1997 09:00 AM HES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 13 INCREASE TOBACCO TAXES SB 61 INCREASE TOBACCO TAXES Number 001 CHAIRMAN WILKEN called the Senate Health, Education & Social Services Committee (HES) to order at 9:00 a.m. and introduced SB 13 and SB 61 as the only order of business before the committee. He announced that testimony on these bills would be taken and Friday's meeting would be spent on committee discussion. DUFFY HALLIDAY , representing himself, noted that he works for the Norton Sound Health Corporation as a Health Educator. He urged the committee to vote on behalf of the legislation. With regards to previous testimony that tax exempt cigarettes on military bases could lead to bootlegging, he had not seen any abuse of tax exempt cigarettes on the Fort Wainwright Military Base when he worked there. He discussed the Native enrollment issue and concluded that argument was frivolous. Based on Mr. Halliday's experience, this tax is a user-friendly tax that people want. He encouraged the committee to vote for this legislation. Number 150 DIANA BUFFINGTON , Republican District Chairman for District 6, informed the committee of the article, "No More Easy Come Easy Go: Visiting Hyder, Carry ID" in Alaska Magazine. She discussed Hyder's location and the fact that no formal border crossing has existed since 1985. Now, Canada has established a customs post in order to slow smuggling and the loss of tax revenue. A carton of cigarettes in Hyder costs about $30, while that same carton in Stewart, Canada costs about $55. Other heavily taxed items in Canada such as hard liquor, beer and wine are also much more expensive than in the U.S. The Canadian government says that it loses millions in tax revenues each year because these goods are smuggled into Canada from Hyder. Ms. Buffington said that Alaska will create a bootlegging system as has occurred in other states and countries that increased "sin taxes." Further, how will the state pay for more policing? Ms. Buffington pointed out that Alaska's Constitution does not allow dedicated taxes to be established. Funding the policing of this would probably utilize the projected tax revenue. Ms. Buffington also foresaw a problem with friends and family from the Lower 48 sending tobacco products to Alaska through the postal system. She noted that she had sent in statements last week. SENATOR ELLIS asked Ms. Buffington if she was representing the Republican District 6. DIANA BUFFINGTON said that she represented her constituents. She clarified that she was representing the more than 150 persons who have contacted her. This is a tax and most people elected their representatives on the platform of no new taxes. Number 211 SENATOR ELLIS acknowledged that he was not completely familiar with the situation in Hyder. Senator Ellis believed that Canadian taxes on tobacco products are much higher than most of the U.S., therefore tobacco products would be much cheaper in Alaska. He did not doubt Ms. Buffington's concern regarding the flow of tobacco products from Alaska to Canada. However, Senator Ellis viewed this concern as supporting an increase in the tobacco tax in Alaska in order to have a more similarly priced product on both sides of the border. DIANA BUFFINGTON clarified that she was referring to cigarettes coming from the Lower 48 to Alaska. Hyder is one small community in which cigarettes are smuggled into Canada. Ms. Buffington said that she was trying to illustrate that bootlegging already exists in this market which results in the loss of revenue. Alaska can expect the same results with this tax. Such tactics did not work in 1919 with the complete prohibition of alcohol, 15 years later the prohibition was eliminated. Ms. Buffington reiterated that this is a tax on a very minute population which is not allowed by Alaska's Constitution. Number 259 SENATOR ELLIS asked Ms. Buffington if she was concerned that the cigarettes on military bases would not be taxed as much as off the bases. DIANA BUFFINGTON noted that some bases limit the number of packs that one can purchase. However, she suggested that an increase would occur by non-smoking individuals purchasing cigarettes for smokers. The purpose of the tax, reducing youth consumption, would then be defeated. Ms. Buffington pointed out that the notion of reducing youth consumption is already manifested in a law making it illegal for anyone under the age of 19 to purchase cigarettes. JENNY LOUDON , testifying from Anchorage, related her experience with the death of a family member from emphysema which was a result of a lifetime of smoking. The final five years prior to this family member's death was filled with much pain and suffering. Ms. Loudon emphasized that her story was not unique. In 1993, over 1.9 million people in the U.S. were afflicted with emphysema and over 13,000 people died. Over 82 percent of those cases were caused by a lifetime of smoking. Ms. Loudon noted the addiction factor of tobacco. The majority of research finds that adults do not start smoking, but teens do. Ms. Loudon urged the committee to increase the tobacco tax by $1.00 per pack; help create disincentives for teens who start smoking and become addicted. Number 319 PAT SENNER , representing the Alaska Nurses Association, supported increasing the cigarette tax by at least $1.00 and increasing the excise tax on tobacco products to 100 percent of the wholesale price. There is nothing more heartbreaking than caring for someone with lung disease brought about by tobacco use. Ms. Senner stated that nurses see first hand how the use of tobacco causes disability, pain, and premature death as well as the difficulty in quitting once the habit is started. She emphasized the need to reduce the number of young people becoming addicted to tobacco products. Increasing the price of tobacco products will help achieve this goal. Ms. Senner believed that the increase in price should be more than a token amount in order to be effective. JUDITH MULLER informed the committee that she was a long-time Alaskan and Republican, and for the last eight years has run a nonprofit called Alaska Health Fair. The Alaska Health Fair works with many other nonprofits who all help people quit smoking and preventing others from starting. Ms. Muller discussed the efforts of the nonprofits to eliminate smoking. Many of these efforts result in success, but young girls continue to smoke at increasingly high rates. The tax will help prevent teens from smoking. Ms. Muller was proud that the Legislature was moving forward on this matter. Number 370 ERIC MYERS stated that he was not a prohibitionist. He believed that adults should have the right to smoke cigarettes if they so desire. However when an individual's freedom adversely impacts other persons' individual freedoms, society must intervene to safeguard the rights of others which is the case with tobacco use, especially with children. Mr. Myers pointed out that along with smokers' rights are smokers' responsibilities which includes the enormous economic cost currently not reflected in the cost of tobacco. Smokers are heavily subsidized by nonsmokers. The $1.00 per pack increase would make cost causers cost payers. Mr. Myers said that the tobacco industry's rhetoric was merely an attempt to detract from the fact that smoking is a childhood problem. Adults rarely start smoking. With regards to the tobacco industry's arguments about social engineering, the Legislature has routinely used tax policy to modify behavior; every tax law has a behavioral effect. Mr. Myers said that there is abundant evidence regarding whether this tax will significantly reduce tobacco consumption. He indicated this tobacco tax increase would reduce tobacco consumption. CHAIRMAN WILKEN noted that Bob Bartholomew from the Department of Revenue and Elmer Lindstrom from the Department of Health & Social Services (DHSS) were in attendance. ELMER LINDSTROM , Special Assistant to Commissioner Perdue in DHSS, introduced Pat Carr who would review the Tobacco Tax Bill Analysis put together by DHSS. Mr. Lindstrom showed the committee a 1950 advertisement with a doctor and policeman that said, "According to a nationwide survey, more doctors smoke Camels than any other cigarette." Mr. Lindstrom did not believe such an endorsement would occur today; the health care professions are certainly supportive of this legislation as previous testimony would indicate. Mr. Lindstrom expressed appreciation for the tobacco tax legislation this year and last. Number 450 PAT CARR , Tobacco Program Specialist in the Division of Public Health of DHSS, stated that the Legislature and the Administration are responsible for protecting and promoting the health of Alaskans. Ms. Carr said that the information the committee has shows that increasing the cigarette tax by $1.00 is warranted and is the most effective measure at this time to protect the health of Alaskans, especially the children. Ms. Carr then reviewed the Tobacco Tax Bill Analysis provided by DHSS. The analysis reiterated that tobacco usage is the number one cause of preventable death and disease in the U.S. Further, 23 percent of the deaths of Alaskans 35 years or older in 1991 were attributable to smoking. Two graphs illustrated the health impact of smoking in the U.S. as well as in Alaska, both account for more than all other deaths combined. The analysis reviewed tobacco usage by youth. Twenty-one percent of Alaskan high school students reported they regularly smoked in the last month and 25 percent of Alaskan middle school students reported smoking at least one cigarette in the last month. A youth tobacco vendors survey found that 64 percent of Alaska tobacco merchants complied with tobacco restriction laws in 1996. However under the Synar Amendment, the federal government mandates an 80 percent compliance rate by the year 2000. With regards to Alaska Native tobacco use, they have some of the highest rates of tobacco use in the world. While Alaska Natives account for 23 percent of smoking related deaths, they account for only 17 percent of Alaska's population. Further, tobacco use among Alaska Native youth is higher than Non-Native youth as well as use in the U.S. Ms. Carr continued with the analysis by reviewing the health related costs of smoking. The total direct medical costs for smoking related illnesses for Alaskans age 35 or older in 1993 was $96.5 million, while Alaska collected only $15.6 million in cigarette tax revenues in 1993 (excludes taxes on smokeless tobacco). A tobacco tax is not new to Alaska. During territorial days, a tobacco tax was levied on cigarettes to help fund school construction. The current tax level, $.29 per pack, has been in place since 1989. The chart on page 13 of the analysis illustrates the disproportionate amount of the total cost of cigarettes that taxes now comprise. Ms. Carr reviewed the impact of tobacco taxes: for every 10 percent increase in tobacco prices, youth consumption decreases by at least 10 percent, and for every 10 percent increase in tobacco prices general consumption decreases by four percent. The following graph in the analysis on page 16 compares the taxes on cigarettes in major industrialized nations. In conclusion, Ms. Carr stressed that the time is right for this tobacco tax and the tax has broad support nationally and locally. Number 533 ROBERT TOLLISIN , representing the Tobacco Institute, informed the committee that he was a professional economist who has done much research and writing regarding public policy and taxation issues with respect to the tobacco industry. Mr. Tollisin cited the following as reasons the tobacco tax increase in Alaska is not suitable: (1) The tax is merely a tax increase on the poorest in Alaska. (2) The tax would create problems with smuggling as discussed previously with regard to Canada. (3) Ordinary people would purchase tax free tobacco on military bases and Indian reservations. (4) A deterrent to smoking is not an excise tax. The deterrent is the law that is already in place, family and peers. (5) The tax would damage retailers who would not only lose tobacco sales but associated sales as well. Mr. Tollisin posed the following question: do you think that smokers do not already pay their own way in Alaska? Smokers are already over taxed. CHAIRMAN WILKEN asked Mr. Tollisin to comment on DHSS information stating that 83 percent of smokers begin smoking before the age of 20. ROBERT TOLLISIN said that he had no basis to dispute that information. The state should provide information regarding the risk involved for consumers. At some point, people are adults and it is their choice to engage in such activities so long as they do not infringe on the rights of others. TAPE 97-9, SIDE B CHAIRMAN WILKEN expressed interest in the tobacco industry's numbers that would either support or refute the 83 percent by Alaska and the basis upon which those numbers were gathered. ROBERT TOLLISIN said that he could investigate that, but pointed out that there is much literature regarding why people begin smoking. That literature suggests that people begin smoking because they emulate their friends. CHAIRMAN WILKEN asked Mr. Tollisin if he realized that once one is on a military base an active military identification or a veterans card must be shown in order to enter the facility. ROBERT TOLLI SIN replied yes. Number 578 SENATOR GREEN referred to a pamphlet produced by DHSS which used a graph to illustrate the taxes on cigarettes in major industrialized nations. The graph shows the U.S. charging $.57 while other European communities are charging higher. Senator Green found in her travel in Europe that everything was expensive. She indicated that there would be a similar skew on other items in those countries as well. ROBERT TOLLISIN agreed. Mr. Tollisin believed it better to be a low tax jurisdiction because economic growth over time is higher. SENATOR GREEN was unsure that the graph presented a case for increased taxes. With regards to Canada, Senator Green pointed out that the "sin taxes" were imposed in order to finance the failed financial investment of those countries involved in the 1982/1984 Olympics. ROBERT TOLLISIN doubted that Alaskan smokers would support the earmarks in the bills for the revenue generated by the tax. He pointed out that figures provided by the Department of Revenue, fell out about the same ratio as smokers to nonsmokers in the population. Smokers are a minority. Number 539 SENATOR ELLIS believed that the previous comments suggested that smokers oppose the tax. The information and testimony presented indicates the opposite, smokers surveyed support the tax. ROBERT TOLLISIN agreed that he had indicated that smokers oppose the tax. Mr. Tollisin did not know what response bias was built in the survey. Mr. Tollisin found it odd that people would want to pay more for a product they consume. SENATOR ELLIS pointed out that Mr. Tollisin as he indicated, was not familiar with the survey. The information by a majority of various subgroups supports the tax increase. SENATOR GREEN acknowledged that the majority may support the tax, but there is over 20 percent difference between users and nonusers. SENATOR ELLIS was surprised that more conservatives supported the tax than liberals. Number 515 DAVID SWEANOR , Senior Legal Counsel for various Health Organizations in Canada, informed the committee that he had worked on tobacco taxation in Canada for about 12 years as well as work with the World Health Organization and various American health organizations. He noted that he was invited to speak by health groups in Alaska about his experience with this issue. Mr. Sweanor said that he was present to provide information and not representing anyone in particular. Mr. Sweanor noted that in the history of tobacco taxation, the U.S. has had low taxes compared to other countries; furthermore, Alaska has low taxes compared to the rest of the U.S. Also the U.S. has low taxes compared to the tax levels 40 years ago. This is important to review due to the relationship between price and consumption levels. Mr. Sweanor referred to Graph 1 of the information provided to the committee. The graph illustrates that when price increased consumption decreased and vice versa. Graph 2 shows that the price of tobacco has increased from 1958 to 1994, but the vast amount of that increase is attributed to price increases by the tobacco industry not taxes. When that information is adjusted for inflation, real terms, can be seen in graph 3. Graph 3 points out that federal taxes now are quite a bit lower than in the late 1950s as well as the state and federal taxes. Mr. Sweanor noted that if the information is adjusted for the Consumer Price Index, Alaska's tax now is lower than in the early 1960s. At exactly the time the deadliness of tobacco was discovered, the tax policy moved in a direction adverse to health policy. Mr. Sweanor stated that the evidence in opposition to that is overwhelming. Many studies point out that tax plays an important role with price and consumption, especially with children. In Canada as prices increased, total per capita consumption fell 40 percent. Teen use decreased by 60 percent as illustrated in graph 60. During that time, revenue tripled as shown in the last graph which is in line with what U.S. studies project. With regards to smuggling, that occurred when Canadian base cigarette companies began shipping cigarettes to northern New York. The smuggling did not become a problem until the price rose three times that of the U.S. These facts have been replicated in other countries such as the United Kingdom. In conclusion, Mr. Sweanor emphasized that health and medical organizations have reviewed the tobacco tax issue and this would not be before the committee if it did not work. The tobacco industry does not have a good economic base for its arguments. There is good reason for Alaska to proceed with this legislation. Number 434 SENATOR GREEN inquired as to why the sale of cigarettes and fine- cut equivalents versus total tax revenues crossed in 1989 and 1994. DAVID SWEANOR explained that the total sales of cigarettes in Canada decreased during 1989, but the revenue increased due to the increased price per pack. In 1994, the Canadian government cut taxes in order to deal with smuggling which lead to increased sales, but decreased revenue. CHAIRMAN WILKEN informed everyone that he intends to take amendments on these bills at Friday's meeting. There being no further business before the committee, the meeting was adjourned at 10:06 a.m.