Legislature(1997 - 1998)
02/10/1997 09:00 AM Senate HES
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SENATE HEALTH, EDUCATION & SOCIAL SERVICES COMMITTEE
February 10, 1997
9:00 a.m.
MEMBERS PRESENT
Senator Gary Wilken, Chairman
Senator Lyda Green
Senator Jerry Ward
Senator Johnny Ellis
MEMBERS ABSENT
Senator Loren Leman, Vice Chairman
COMMITTEE CALENDAR
SENATE BILL NO. 13
"An Act relating to taxes on cigarettes and tobacco products, and
to the use of the proceeds of those taxes; and providing for an
effective date."
- HEARD AND HELD
SENATE BILL NO. 61
"An Act relating to taxes on cigarettes and tobacco products, and
to the use of the proceeds of those taxes; and providing for an
effective date."
- HEARD AND HELD
PREVIOUS SENATE COMMITTEE ACTION
SB 13 - See Senate Health, Education & Social Services Committee
minutes dated 2/5/97.
SB 61 - See Senate Health, Education & Social Services Committee
minutes dated 2/5/97.
WITNESS REGISTER
Duffy Halliday
PO Box 2105
Nome, Alaska 99762
POSITION STATEMENT: Urged the committee to vote for the
legislation.
Diana Buffington, District Chair
Republican Party, District 6
317 Maple
Kodiak, Alaska 99615
POSITION STATEMENT: Discussed situation in Hyder.
Jenny Loudon
1940 Martha's Vineyard 4
Anchorage, Alaska 99507
POSITION STATEMENT: Urged a tobacco tax increase of $1.00 per
pack.
Pat Senner
Alaska Nurses Association
237 E Third Avenue #3
Anchorage, Alaska 99501
POSITION STATEMENT: Supported a $1.00 increase in the cigarette
tax and increase of 100 percent of the
wholesale price on tobacco products.
Judith Muller
1518 Airport Heights Drive
Anchorage, Alaska 99508
POSITION STATEMENT: Discussed her work with the Alaska Health Fair
organization and other nonprofits on this
issue.
Eric Myers
2834 Knik Avenue
Anchorage, Alaska 99517
POSITION STATEMENT: Indicated support of a tobacco tax increase.
Elmer Lindstrom, Special Assistant
Office of the Commissioner
Department of Health & Social Services
PO Box 110601
Juneau, Alaska 99811-0601
POSITION STATEMENT:
Pat Carr, Tobacco Program Specialist
Division of Public Health
Department of Health & Social Services
POSITION STATEMENT: Reviewed the Tobacco Tax Bill Analysis
produced by DHSS.
Robert Tollisin
Tobacco Institute
Virginia
POSITION STATEMENT: Discussed reasons in opposition to a tobacco
tax increase.
David Sweanor
Ottawa, Canada
POSITION STATEMENT: Shared experiences with tobacco tax.
ACTION NARRATIVE
TAPE 97-9, SIDE A
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.
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