Legislature(1997 - 1998)

02/10/1997 09:00 AM HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                
 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            
  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                      
  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            
 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                
  (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            
  (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             
 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.                                                                    

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