Tobacco Documents Online

I The Gove=or's Citizens' Panel on Smoking & Heal--a is conslderi:,o a recoII:Clen- dation to increase the cigarette tax from 11(,, per pac'.c :o loC ter pack. I i Differences in state cigarette tax levies cause increased cigarette bootleggii and the encroachment of organized crime into legitiWate busiaess t. Any increase in the cigarette tax should be opposed. 1 HIGH TAX STATES' SUFFER REVENUE' LOSSc.S ~ According to the Advisory Cormission on IntergovernWental Relations (ACIR), I cigarette bootlegging has become a severe problem in states with high cigar- ' ette taxes. See Eshibit A I. New York, Pennsylvania, Florida, and ~Iassachusetts are examples of states that have raised their cigarette taxes to levels that have invited chaos in tax administration, bootlegging, and have involved organized crime. - ACIR estimates of tax evasion show that ttichigan is currently losing $6.9 million in cigarette tax revenue. (The report was spearheaded by a current Michigan Executive Office official who was on leave from his job here.) Neighboring states with higher tax rates are losing even more according to ACIR: - I1linoi s- losing $21 million annually (12C ta_Y). - Wisconsin - losing $13 million annually (16C tax). - Ohio - losing $16 million annually (15c, tax). - Indiana - losing $13 million annually (10.5C tax). A HIGHER ?1ICHIGAN CIGARETTE 'rzk:; T .1ILL LEAD TO AN INCREASE C!T ~ IN ILLEGAL CIGA'_RETTE SALES t, p CD -251- I I I E L L L L

Sydney D. Goodman, Coc:.missioner of Revenue, Departr.:ent of Treasury, says, "By I I I I Keeping our tax rate down, we're able to avoid s3uggling problems. The stuff " we've got going on here is all small ope=ations". David Parker, administrator of the cigarette tax, Depa:tment of Treasury, comments, "We do have problems but not like they do in the East. We don't think they're coming in by the truckload". However, if Michigan were to increase its cigarette tax rate, that would likely change a minor bootlegging problem into a major one. A HIGHER MICHIGAN CIGARETTE TAX IS AN OPEN I~+'VITATION TO ORGANIZED CRIME In other states where high cigarette taxes exist, the criminal element has ~~uickly become involved. I The incentive to bootleg cigarettes from low tax states to high tax states also results in many areas in hi-jacking of trucks, personal violence against delivery drivers, and even deaths. Every citizen deserves to live in a society and community free of the threat of organized crime. ct Ul Here's what Senator Edward Kennedy said on the Floor of the Senate of the ~ United States on November 3, 1978: "Cigarette bootlegging, as it is cor.mmonly referred to, has become not only a serious problem for the many states which rely on cigarette taxes for needed revenue, but also has become a major revenue source for organized crime .groups. It has been estimated that the states are losing over $400 million a ~ Jyear because of this activity, and that is a very conservative estimate. The ~ ~ ~ -252-

I only ones profiting from this activity are the major organiced crime familik. ~ which control between 40 to 50 percent of the activity. Cigarette bootlegging is now ranked as the sixth major revenue source for organized crime with a gross of $1.5 billion a year and profits estimated at $800 million. Even worse than the smuggling itself is the violence that acco:rro anies the i i activity - - truck hi-jacking, armed robberies, serious assaults, extortion, ( murder, and corruption of public officials. The effects of this activity do not stop there. The indirect result of cig- arette bootlegging is the loss of jobs and businesses of those legitimate wholesalers, vendors, and sales people. In the past 10 years the employees of wholesalers and vendors have lost their jobs of the wholesalers have gone out of business becaus.e of this." HIGHER CIGARETTE TAXES HURT bEGITIMATE BUSINESS j I An increase in the cigarette tax will result in loss of further business to 60,000 Michigan retailers, wholesalers, and vendors, from tax evasion. Cigal ettes are used as a leader to attract business to retail stores where custom -: bay other items. These together mean less revenue from other tax sources sudiz as sales tax, Single Business Tax, and individual income tax. Cr L ~ a ~ CONCLUSION ~ ~ O While an increase in the cigarette tax may be seen by some to painless solution to governmental revenue problems, or to discourage cigarette consumption, the experience of other states must be heeded. Michigan should not go the way the hard way. of other states who -253- have have learned their lesson L I 50 percent of and 35 percentl O be a quick and L L

i I I I I I I 1. Higrh cigarette taxes increase illegal sales o;: cigarettes. 2. High cigarette taxes cause an overall revenue loss irn several tax sources. 3. High cigarette taxes are an open invitation to organized crime. 4. High cigarette taxes hurt legit Wate businessmen and their employees who depend on their jobs for a living. -254-

~TNEICI a{ ORI)~LOW TAX~ST~CSU - ~ -- TO OSST~INNTAX tRAIS~EDN ~AIN DUES%~RING+~ IN 1977 HIGH TAX STATES State Cigarette Tax Rat s* ,~ and Cigarettc Smuggling Revenue Gab s and Losses** 5646102 ,_:,.~_,; 12~ ~ ~ wro. _ 9.1 1~ 10(r 101~ a1Z a - 10lt 1u `sI i ~ 10 _____.- ~, . 12~ 1161 10. 9 'M OKIA. II I lAAc IIK 130 7.75, ~ s~,~i' p.~;,~',t~l~~,~N, ~~t ri~l;Kf. If ": 13 12 12t 21It "'.1nlt 21Q i i . h,.19 0 14 oG1U 17c WIIIU s2.Mo 10~ tf) EXHIBIT A KEY - 7 Mlnorrevenuaaoeses or smatl gains (syo or sess) ® Moderate revenue losses e ~ ~ le'Y% or less) As of JulY 1, 1916 NOTE: Estimates of dollar revenue ~~ Large revenue losses "Based on ACIR IUA'All C~ ~.- ~ (E96 or more) gains and lossos are presonled in slall eslimtes- 40% (114t) Lerge revcnuo'yelns Table 19. 1975 dal• \\\/// ~ (5% or morel NOTE: Since 1977, ]-0 states have raised cigarette tax levels while one has lowered its tax,

S[Rokinztlealth and Ci -a=et:e TTe-:d? n!z I I Discussion regarding the access of teena~ers to unattended cigarette vendir.-. machines has intensified in the Gove=-r:or's Citizens' Panel on Smoking and Health during recent meetings. The feelino amono some Panel members is to limit availability to the machines as a method of discouraging teenagers from smoking. VENDING MACHINES FALSELY ACCUSED I Those who advacate legislative restrictions on cigarette vending machines argue that they are a major source of cigarettes for minors. The idea is that since the machine cannot distinguish between adults and teenagers, cigarette vending machines must be a major source of cigarettes for teenagers thus circumventing state laws which prohibit the sale of tobacco products to minors. This argument ignores the facts. If an understanding of vending as a method of retailing cigarettes exists, the facts become clear. FACTS ABOUT TEENAGE SMOKING AND SOURCE OF CIGARETTES The facts about actual teenage cigarette pruchases and smoking habits dis- prove the idea that vending_might be a source of cigarettes for minors. Current studies published by the U.S. Government show that: a. only a small number of teenagers smoke-- and that number is declining; b. only 1 out of 10 teenage smokers purchases cigarettes; and c. over 97e of teenage smokers-do not buy from vending machines -256-

i I Twi2e~~:er Dare^.ts smoke is the I?lost iTnor:an: 4:::e::c°_ on teenagers s^CcCing, , ~ tolZoCJeQ by peer groL:p e::amDles and oress~res, and t::e desire to be adult. PRICE DETERS TEE11rsGE ?U? C:ASES I If it can be assumed that price differentials of cigarettes between over-the- counter and cigarette machines act as a deterrent to vending machine sales of cigarettes, it is further clear that cigarettes are not being purchased this way. Anyone can observe that the current difference between over-the-) counter and machine prices are anywhere from 25 cents to 35 cents per pack, with the machine being the more expensive method of sale. MIARKET_ S N4 VE CHANGED I I . I In the past few years, the self-serve gas stations that have proliferated J around the country have become a large retail cigarette market. ConsequentLi machine sales of cigarettes have dropped dramatically as have the nuwber of locations where machines are located. I Currently about 907e of all cigarette machines are located in "adult type" ~ locations such as bars, better restaurants, hotels/motels, and the like. These are locations unlikely to be frequented by teenagers on a massive basil. Gt u' S THE SIX STEP SELr -REGULATI0:1 PROGR.-_•f c 0:2 VENDING "~ 01) The vending industry has long recognized its resocr.sibility to prevent minors' purchasing cioarettes from vending machines. The vending operator, aware ofL laws which prohibit sales to minors, has long conducted his business under _, an industry code of self-regulation designed to make sure cigarette vending -257- ( I

machines are not a source of cigarettes to minors. Following is a brief statement of the six step program: 1. Survey the entire cigarette operation to determine the location of those machines to which minors are likely to have access. As part of this survey, maintain a permanent file record for each machine location. 2. Post "Minors Are Forbidden" decals conspicuously on all machines. 3. Post on each machine the name, address, and phone number of the operator. 4. Solicit the location owner's cooperation to prevent minors from purchasing from machines to which minors have access. Reposition machines where necessary, to assure adequate supervision. 5. Remove machines from locations where the sale of cigarettes to minors cannot be prevented. 6. Cooperate with competitors to achieve area-wide compliance of preventing the purchase of cigarettes by minors from vending machine: CONCLUSION Accusations against cigarette vending machines related to teenage smoking have no basis in fact. The vending industry continues to recognize its responsibilities through self-regulation (even though few teenagers actually purchase cigarettes from vending machines). It stands ready to cooperate with all groups to make sure that its record of responsible conduct and comp?iance with established laws is maintained in fact and in spirit. -258-