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TOBACCO INDUSTRY 1POSITIONS ON NEW YORK STATE LEGISLATION The Tobacco Institute December 1982

TABLE OF CONTENTS I. Preface II. Cigarette Excise Taxes III. Fire Safety for Cigarettes and Little Cigars IV. Public Smoking Restrictions V. Sampling VI. Disclosure of Chemical Substances in Cigarettes VII. Bibliography

PREFACE New York State, on those individuals whose livelihoods are directly or indirectly linked to the tobacco industry, and on the freedoms enjoyed The New York State Legislature will consider several bills that, if enacted, will have a dramatic and adverse impact on the economy of by the citizens of the Empire State. The following tobacco-related measures are pending: *Assembly Bill No. A. 11805 and Senate Bill No. S. 9233 would prohibit the sale within the state of any cigarette that is not "self-extinguishing." This measure requires cigarett.e manufacturers to employ technology that does not exist. In fact, no satisfactory process or patent for a°fire-safe" cigarette has been identified. *Senate Bill No. S. 2400 and S. 9234 would restrict smoking in . 0 P certain public places, such as elevators, restaurants, public meet- ings, etc. In addition, Assembly Bill No. A. 358-A would prohibit smoking in "schoolhouses," except in certain~designatedareas. The

C i courtesy and tolerance for the preferences of others have been, and should remain, the only elements needed for a cooperative relationship between smokers and nonsmokers. With regard to Assembly Bill No. A. 358-A, the tobacco industry firmly believes that smoking is strictly an adult custom. The enact- ment of this bill, however, may have unintended effects, such as breaching collective bargaining agreements of some employee organiza- tions. *Assembly Bill No. A 10530 would prohibit the sampling of ciga- rettes within the state. Not only would this unwise bill result in loss of jobs and revenue, it disregards tobacco manufacturers consti-; tutional rights to free speech and equal protection under the law. *Assembly Bill No. A. 11896 would require cigarette manufacturers to disclose the chemical additives in cigarettes. The tobacco'indus- try believes that significant action has already been taken on this issue at the federal level. The manufacturers are optimistic that the questions that have been raised with regard to cigarette ingredients will be resolved at this level. Enactment of this bill would encour- age a confusing array of similar proposals in other states and as many as 50 different ways of complying with such measures. In view of the action already takemat the federal level, there is no reason~for the spending of additional resources at the state level. 2-

d' C C Finally, it has been suggested that the cigarette excise tax be increased as a way of offsetting a state budget deficit in the upcom- ing year. Such a move would~adversely affect New York state consum- ers, business and fiscal planning. It would unfairly place a greater tax burden on one group of consumers and on an industry which already contributes significantly to the state. The introduction of the preceding bills and the possible emer- gence of new taxing measures has become a ritual in the New York State Legislature. Taken singularly, the introduction of these bills may be inter- preted in a laudable way. However, the cumulative effect of these bills clearly indicates that the aim of some sponsors is to prohibit legitimate marketing (A. 10530), manufacturing (A. 11805 and S. 9233), as well as unduly restrict when and where the consumer may enjoy the use of this product. The weight of this evidence clearly reveals the motive of some sponsors is to prohibit the sale or use of tobacco in New York State. Clearly, the enactment of any of these proposals would be disas- trous for the State of New York, its citizens and the business commur nity. Accordingly, we urge your support in defeat of such an ignoble O experiment. ~ CD ~ -3-

Increase in the Cigarette Excise Tax I. Introduction Not unlike other states, New York faces a budget deficit in the upcoming year. When a deficit situation occurs or appears likely, some government officials frequently turn to higher excise taxes, particularly the cigarette excise tax, as a source of additional revenue. Such action has placed a heavy and unfair tax burden on one segment of the State's population - smokers. Further increases in the tax on cigarettes will add to the burden, depress consumption and tax revenues, increase bootlegging and attendant criminal activity and erode this tax revenue base. The tobacco industry strongly opposes any suggestion that New York State's regressive tax on cigarettes be further increased. II. Arguments in Opposition to an Increase in the Cigarette Excise Tax A. Potential Effect of Tax Hike on Revenue In 1981, at which time the average retail price was 72.5 cents per pack, New York State grossed $342,554,000 in cigarette taxes. During FY 1982, the average retail price increased by about 15 per cent and the state tax revenues from cigarettes dropped to $339,176,479. On January 1, 1983, an eight-cent hike in the.Federal Excise Tax will cause cigarette prices to rise still further, causing a decline in cigarette sales from the FY 1982 level. An additional increase in the tax at the state level would push prices over $1.00 throughout New York. Such a price will act as a psychological barrier which could further dampen sales. Raising, the tax rate depresses sales, thereby causing revenues generated by the increase to fall short of expectations. Because it erodes the tax base by reducing sales, any tax increase would be adverse to and shortsighted for the state attempting to generate additional revenue. B. Cigarette Bootlegging A frequently overlooked but extremely serious problem which results from the disparity in cigarette tax rates among the states is cigarette smuggling.l As a

relatively high-rate state, New York, if it were to raise the cigarette tax, would likely experience an increase in bootlegging. According to a report produced by the Advisory Commission on Intergovernmental Relations in 1975, and updated by the Federal Bureau of Alcohol, Tobacco and Firearms, New York may have lost up to $53.2 million in cigarette revenues through bootlegging in 1979. This loss represents an estimated 16.1% of total cigarette tax revenues for the state that year. Loss of revenue, however, obscures a more menacing problem: increased criminal activity. Addressing this concern in Congressional hearings on cigarette bootlegging, Senator Edward M. Kennedy pointed out that "...intelligence reports have clearly documented the fact that organized crime now controls a lion's share of this illegal activity (bootlegging)...[T]Ihousands of legitimate wholesalers, retailers, drivers...have lost their livelihood as a direct result of organized crime's takeover...[T]here has been evidence of increasing, violent crime: Extortion:and bribery, truck hijackings, armed robberies, serious assaults and even murder."2 C. Cigarette Tax: Regressive and Inequitable The New York State and New York City cigarette taxes are especially regressive and inequitable taxes. The cigarette tax discriminates against the more than 4.5 million residents of the state who smoke, but the tax falls most heavily on those least able to afford it. Because the percentage of income devoted'o to buying cigarettes falls as income rises, New York cigarette' taxes are already leviedat higher effective rates on' the disadvantaged and those on fixed~incomes, particularly elderly citizens, than on the more affluent. Any increase in the current tax rate will add to the tax burden of the lower income groups and will contribute further to the overall regressivity of the New York tax structure. In 1981, 31.7 percent of what New York smokers paid~for a pack of cigarettes went to the Fed'eral'and state governments imthe form of taxes. For a family with two average smokers, the following chart illustrates the burden of cigarette taxes in New York as they fall on different income levels at the current rate. (See Table I) M CD 5-

0 C C TABLE I PERCENTAGE OF INCOME PAID IN ALL TAXES ON CIGARETTES AT CURRENT AND FUTURE RATES FOR A FAMILY WITH TWO AVERAGE SMOKERS IN NEW YORK Income Percentage of Income Paid in Taxes on Cigarettes (current rate) Percentage Paid in Taxes (with~FET of Income on Cigarettes hike 1/83) NY State NY City NY State NY City $ 3,000 9.1% 11.3% 12.0% 14.2% 5,000 5.5 6.8 7.2 8.5 8,000 3.4 4.2 4.5 5.3 10,000 2.7 3.4 3.6 4.3 15,000 1.8 2.3 2.4 2.8 25,000 1.1 1.4 1.4 1.7 December 1982 D. Adverse Impact on New York Businesses Higher cigarette taxes will affect revenues and employment in sectors both directly and indirectly involved in the tobacco industry in New York. Most of these effects will be in the form of revenue losses to wholesalers and retailers. Higher cigarette taxes and the resulting decline in the purchase of tax-paid cigarettes will also reduce state revenue from other sources, such as the general sales tax, corporate income tax, and the individual income tax. For example, cigarettes are traffic-builders for. the state's 30,248 retail establishments which sell cigarettes. When people reduce purchases of cigarettes, or turn to bootlegged cigarettes, the revenue derived from the sales and profits of other products suffers as in-store traffic declines. In addition to retailers, New York has 148 primary tobacco wholesalers and 66 other large grocers, drug and miscellaneous wholesalers who handle cigarettes across the state. O tJ C:. ~ U{ CD O

C C Decreased consumption due to a higher cigarette tax rate will adversely affect supermarkets and convenience stores as well. Tobacco products account for 14.83 percent of all non-food sales in the United States. Fortyfour percent of the cigarettes sold for domestic consumption are sold in supermarkets. Those cigarettes and other tobacco products account for 3.51 percent of all supermarket sales.3 In convenience stores, excluding gasoline sales, cigarettes are the number one product sold. Tobacco products comprise 16.1 percent of the gross profit dollars of convenience stores.4A tax hike on cigarettes will have a rippling, damaging effect on the business sector. III. Conclusion It is clear an increase in the excise tax, whether it be on cigarettes or other tobacco products, would do considerable harm to the economic health of New York State consumers and businesses. In an effort to raise additional revenue, a cigarette tax hike would.burd'en even more of those people least able to bear the cost, would encourage criminal activity and would cripple business attempts to recover from the current economic depression. Surely the need for more revenue is not so great that these very troubling consequences should be visited upon:the citizens of New York. Enactment of an increase in the tax on cigarettes would not serve the public interest.

(h C C 1 See Senate Committee on the Judiciary, Subcommittee on Criminal Law and Procedures, 95th Congress, 1st Session, Racketeering in the Sale and~Distribution of Cigarettes 9-10 (Oct. 21, 1977). 2 Id. 3 4 at 1-2. PARTCH, "35th Annual Consumer Expenditures Study," Supermarket Business, p. 62 (Sept 1982). Convenience Store News , (June 14, 1981).