Tobacco Documents Online

- 11 - IV. The Policy Recormendations in the Majority Report Are I11-Advised and Unwarranted Given the limited scope and nature of the panel's deliberations, the policy recom.mendations contained in the majority report are entitled to little weight in any respon- sible dialogue on smoking and health. Indeed, even a cursory examination of the majority recommendations is sufficient to-illustrate the types of problems that would ensue were the recommendations to be adopted. A. Recommendatior. Nos. 1 and 2. The centerpiece of the majority's recommendations is a proposal to increase by five cents per pack the state excise tax on cigarettes. The majority report suggests that this measure would yield sufficient additional revenue to finance the remaining recommendations. The majority report also recommends that the Governor and the Michigan congressional delegation lobby the federal government for a "substantial" increase in the federal cigarette excise tax. Unfortunately, the panel majority did not consider the discriminatory features of the proposed excise tax increases. Without the proposed increases, the tax burden on cigarette smokers in Michigan already is great: of the average retail price of 57.2 cents for a pack of cigarettes, 19 cents or 33.2 percent of the price is made up of excise taxes, federal and state. The state's portion is 11 cents per pack. This tax burden means that cigarette smokers in Michigan are responsible for a disproportionately large contribution to state revenues. Total 1979 Michigan tax revenues attributable to the cigarette tax were $141 million, or 2.3 percent of the total state revenues.l/ While all state residents benefitted from these revenues, they were contributed by only 38 percent of the adult population in Michigan.2/ Moreover, any increase in the cigarette excise 1/ Dr. Warner's estimate.of smokers' contribution to state revenues is even higher, "close to 3 percent of the State's General Funds revenue." Warner paper, p. 28. 2/ Approximately 2.4 million people in A:ichigan smoke cigarettes. Figure derived frcm data compiled by Tobacco Tax Council.

tax would be clearly regressive in nature. The estimated $153.00 annual tax burden carried by a family with two smokers (prior to any tax increase as proposed by the majority) is felt more acutely by the lower income family least able to pay.i/ The suggestion in the majority report (p. 6) that the recommended tax increase will not contribute signif- icantly to cigarette bootlegging defies logic and ignores substantial evidence to the contrary. As support for this suggestion, Dr. Warner noted that Michigan's current 11-cent excise tax is close to the 12-cent average of all states.2/ Obviously, this does not support the assertion that a five- cent boost in the 11-cent rate will not provide a signif- icant incentive for bootlegging. In addition, Dr. Warner's original memorandum pro- claims that Michigan's location is "far enough away from the major cigarette 'exporting' states (Kentucky, New Hampshire and North Carolina) that transportation costs would dis- courage major smuggling operations."3/ However, the evidence Dr. Warner offers, far from supporting his conclusion, actually indicates that bootlegging may pose a very real problem. He asserts that "[m]ost of the states victimized by bootlegging are situated on the Atlantic coast," foot- noting the "je]xceptions" located distant from the states that he defines as the cigarette-exporting states: Arkansas, Washington, Texas, and Michigan's neighbor, Minnesota.4/ In fact, Kentucky, with only a three-cent tax, is closer to 1/ While the $153.00 annual tax represents only about .7 percent of the effective buying income of households within the Michigan average income bracket of $20,800, it represents 1.9 percent of the effective buying income of a family earning less than $8,000. See "The Survey of Buying Power -- Data Service 1979," Sales and Marketina Manacement Magazine, p. 7-32. 2/ Warner paper, 3/ Warner paper, 4/ Warner paper, P• P• P• 28. 28. 28.

Michigan than to Minnesota, only a few hours away by i:.ter- state expressway. If raised by five cents to 16 cents per pack, Michigan's tax will be over 500 percent higher than the Kentucky tax. The involvement of organized crime in cigarette bootlegging is well known. Every tax increase creates more incentive for organized crime to bootleg by making boot- legging operations more profitable. in New York, for example, an estimated 480 million packs of cigarettes move through illegal channels in the course of a year. To put this into perspective, these are more cigarettes than the combined annual sales during the past year in Alaska, Montana, Utah, Vermont and Wyoming. Organized crime infiltrates distribution channels in population centers where the biggest market for contra- band cigarettes exists. For example, approximately one- third of the adults in Pennsylvania live in the Philadelphia area, where a number of arrests involving organized crime and cigarette smuggling have been made. Likewise, Detroit also would be a likely target area for organized crime. The otherwise law-abiding citizen may feel that he is only voicing his frustrations at the exorbitant taxes on cigarettes when he buys smuggled cigarettes. But what he is really doing is financing a variety of other underworld activities such as drugs, prostitution and loan sharking. Although the majority report seeks to convey the impression that the "economic efficiency" of the majority's policy recommendations was carefully analyzed (p. 2), this impression is mistaken, as is demonstrated in Part III above. Aside from the social undesirability of inviting bootlegging and criminal elements into the State, the effect of bootlegging on the "economic efficiency" of the proposed Michigan excise tax increase was not studied at all, much less studied carefully. The revenue loss to state and local governments in high-tax states is the most visible and direct consequence of cigarette bootlegging. The Advisory Commission on Inter- governmental Relations stated in a 1977 report that about $337 million in revenue is lost each year because of the smuggling of cigarettes into high tax states. In Michigan, the Commission estim,ated an annual loss of $6.9 million.

The problem of bootlegging also affects indirectly the "cost efficiency" of the majority's excise tax proposal. The Advisory Commission noted that cicarette bootlegging already has dealt a damaging blow to the legitimate tobacco industry. Many jobs have been lost at the wholesale and retail level. The-panel majority also failed to recognize or consider the disadvantage of earmarking revenues. Part of the proposed five-cent cigarette tax increase is recommended to be earmarked to create a fund to finance anti-smoking. projects.l/ This recommendation would eliminate legislative control over future appropriations for the designated projects, since it guarantees future funding regardless of whether the project has continuing merit. This is plainly contrary to the growing recognition of the beneficial purposes served by annual review of govera.~nent programs during the appropriations process. Understandably, there- fore, the growing trend in state governments is away from the kind of earmarking of funds that the majority recommends and towards placing all revenue in a general fund from which the legislature can make annual appropriations. This trend has led some states to adopt zero based budgeting and/or sunset provisions. These tools permit the state legislature to scrutinize all state programs and projects and determine their validity, continuing usefulness, and relative importance. B. Most of the remaining recommendations of the panel majority are designed to control or penalize the smoking of tobacco products in public places (e.q., Recom- mendation Nos. 5, 6, 7 and 8) and to encourage the cessation of smoking by adults through either public education pro- grams (Recommendation Nos. 10, 11, 12, 13, 14, 15, 16, 17 and 18) or monetary incentives (Recommendation Nos. 3 and 4). In addition to a lack of demonstrated need for any of these measures, the recommendations would deeply involve the state government in mat-ters of personal choice. During hearings in other states on bills to re- strict smoking in public places, the problems inherent in such legislation have been made clear. Chiefs of police have described the difficulty of en=orcement; owners of res- taurants have pointed to the costs of compliance, including 1/ Majority Report, p. 6.

the loss of income due to customer dissatisfaction; and office managers have spoken of the threat to harmony in the workplace because of unpleasant confrontations between smoking and nonsmoking employees. And then there are the growing number of persons -- smokers and nonsmokers alike -- who fundamentally disagree with the increasing encroachment of government into matters of personal choice. As Dr. Warner stated with disquieting eauanimity in his original memorandum, "police monitoring [of) smoking behavior has a distinctive Orwellian flavor."1/ In fact, government regulation of smoking behavior raises particularly disturbing questions because of its regressive character and potential for abuse. The poor will be the people who most will feel the impact, socially and economically, of many of the majority's proposals -- including the proposed "establishment of stiff fines for violating smoking laws" and "we ll-publicized instances of enforcement."2/ Moreover, laws to restrict smoking_in public have a hidden potential for abuse. An analysis of one month's operation of the now-defunct Chicago smokers' court revealed that out of 279 people summoned, 248 were black. A columnist who is himself an anti-smoker observed: "The suspicion is strong that Chicago's smokers' court has absolutely nothing to do with promoting clean public air."3/ The abuse to which public smoking laws are subject has been a major factor in the refusal of other governmental entities to adopt recommendations like many of those contained in the majority report. 1/ Warner paper, p. 58. 2/ Majority Report, p. 11. 3/ Schafer paper, p. 19; quoting from Jones, W., "Chicago's Smokers Court Puffs Up Some Haze," Minneapolis Tribune, July 1976.

f CONCLUSION The superficial character of the majority report, and of the underlying panel deliberations, must be taken into account in any consideration of the panel's recommenda- tions. The majority recommendations are not supported by the evidence before the panel. Examination of the evidence the majority chose to ignore simply confirms the vulner- ability of the recommendations. Walter P. Maner III Executive Secretary Michigan Tobacco and Candy Distributors and Vendors Association, Inc.