BILL ANALYSIS Ó
AB 10 X2
Page 1
(Without Reference to File)
ASSEMBLY THIRD READING
AB 10
X2 (Bloom)
As Amended March 3, 2016
Majority vote
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+---------------------|
|Public Health |9-4 |Bonta, Bonilla, |Maienschein, Baker, |
| | |Campos, Eduardo |Mayes, Steinorth |
| | |Garcia, Levine, | |
| | |Santiago, Mark Stone, | |
| | |Thurmond, Wood | |
| | | | |
| | | | |
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SUMMARY: Authorizes a board of supervisors of a county or city
and county to impose taxes on cigarette and tobacco
distributors, including within an incorporated city within the
county; allows counties, or cities and counties to enter into
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agreements with other counties, or cities and counties to share
any startup and administrative costs; and, also allows them to
enter into an agreement with the State Board of Equalization
(BOE) to perform functions incident to the administration or
operation of a tax imposed pursuant to the authorization of this
bill.
FISCAL EFFECT: This bill has not been analyzed by a fiscal
committee.
COMMENTS: According to the author tobacco is the leading cause
of preventable death and disease in the United States and
treatment for tobacco-related health conditions costs the state
billions of taxpayer dollars. The author notes since the 1988
passage of Proposition 99, California has seen smoking rates
drop drastically due to the tax increase as well as due to the
programs funded by the tax. The author contends it is time to
take the success of the statewide tax and utilize it on a more
local level, empowering local authorities to discourage the use
of tobacco products and providing a new source of funding to
important local programs. The author states, while rates of
tobacco usage have decreased in recent decades, there are still
large numbers of teenagers and young adults who are picking up
their first cigarette and becoming addicted and the Surgeon
General projects that, without a serious reversal of current
trends, 5.6 million youth age 0-17 alive today will die
prematurely from tobacco use. The author concludes it is time
to focus on what can be done on a local level to directly
address the issues that are leading Californians to begin and
maintain this harmful habit.
Tobacco taxes in California. Prior to 1989, California levied
an excise tax of $0.10 on each pack of 20 cigarettes. Passage
of Proposition 99 in November 1988 increased the excise tax on
cigarettes by $0.25 per pack (to $0.35 per pack) effective
January 1, 1989 and imposed a "tobacco products tax" on cigars,
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chewing tobacco, pipe tobacco, and snuff. The tobacco products
tax, which is stated as a percentage of the wholesale cost of
tobacco, was set at a rate equivalent to the excise tax on
cigarettes. Proposition 99 revenues are deposited into the
Cigarette and Tobacco Products Surtax Fund to support
anti-smoking education programs, tobacco-related diseases
research, indigent health care and public resources. An
additional $0.02 per pack cigarette increase was added in 1994
to fund Breast Cancer Research. The proceeds from the tax are
deposited in the Breast Cancer Fund, with allocations to the
Breast Cancer Research Program and the Breast Cancer Control
Program.
Passage of Proposition 10 in November 1998 further increased
both the cigarette and tobacco products tax rates, bringing the
state tax to $0.87. Proposition 10 increased the cigarette tax
rate by $0.50 per pack and the other tobacco products tax rate
increased by an equivalent amount, effective January 1, 1999.
Proposition 10 requires that revenues from the Proposition 10
tax increase be deposited in the California Children and
Families First Trust Fund for the purpose of promoting,
supporting, and improving the development of children from the
prenatal stage to five years of age. Proposition 10 also
indirectly generated a second increase in the other tobacco
products tax rate, beginning July 1, 1999. This additional
increase resulted because Proposition 99 requires the other
tobacco products tax rate to be recalculated on July 1 of each
year based on the wholesale price of cigarettes in March of that
year. Thus, when Proposition 10 increased the tax on a pack of
cigarettes by $0.50 on January 1, it indirectly triggered an
additional increase in the other tobacco products tax on July 1,
1999. Revenues from this additional increase were deposited in
the Cigarette and Tobacco Products Surtax Fund to fund
Proposition 99 programs. There is a federal excise tax on
cigarettes of $1.01 per pack.
Tobacco-related diseases. Every year, an estimated 443,000
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people in the United States die from tobacco and smoking-related
illnesses or exposure to secondhand smoke, according to the
Centers for Disease Control and Prevention (CDC). The CDC also
reports that another 8.6 million people suffer from serious
smoking-related illnesses. According to the Department of
Public Health (DPH), smoking causes heart disease, cancer,
stroke, and chronic lower respiratory diseases, which are the
leading causes of death and disability among adults in
California. Smoking-attributed diseases are an economic burden
due not only to health care expenses but also productivity
losses related to disability or early death. DPH asserts, since
the 1988 passage of Proposition 99 in California, adult smoking
rates declined by more than 40% from 22.7% to 13.3% in 2008. As
smoking rates declined, mortality and morbidity rates for
diseases related to smoking also declined. This parallel trend,
according to DPH, supports causal association between these
conditions and smoking.
Tobacco taxes and other states. California's tobacco tax rate
($0.87) ranks 33rd when compared to the rates of other states.
The national median cigarette tax rate is $1.54 per pack. The
highest tobacco tax rate is in New York at $4.35 per pack and
the lowest is Virginia at $0.30 per pack. Some local
governments, such as New York City ($5.85 per pack total tax
rate) and Chicago ($5.66 per pack total tax rate) have their own
tax in addition to the state tax. California has not raised its
cigarette excise tax since 1998. According to the Campaign for
Tobacco-Free Kids, the average price for a pack of cigarettes in
California is $5.44 with all taxes included.
Impacts of higher cigarette prices. According to the
Legislative Analyst's Office (LAO), most revenue estimates
assume that an increased tax on cigarettes would raise the
retail prices of cigarettes to include the new cost. This could
potentially result in consumers reducing the quantity of taxable
products they consume. The LAO further reports, since the use
of tobacco products has been linked to various adverse health
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effects, an increased cigarette tax could reduce state, and
local government health care spending on tobacco-related
diseases over the long-term. DPH maintains that higher taxes
are particularly effective in reducing smoking among vulnerable
populations, such as youth, pregnant women, and low-income
smokers. Increases in tobacco prices affect the behavior of the
young and low-income, who tend to be more responsive to price
changes than older and wealthier individuals. Higher tobacco
taxes could encourage more low-income smokers to quit. However,
if individuals considered to be low-income do not quit, the
tobacco tax increase could be considered a regressive tax
because these populations would be spending more of their income
on the product.
Higher cigarette prices through tax or fee increases can also
exacerbate tax evasion and foster illegal cigarette sales.
These illegal activities include increased smuggling of
cigarettes and tobacco products into California and the sale of
counterfeit cigarette stamps and products.
According to the BOE, cigarette tax evasion is highly correlated
with cigarette prices and excise tax rates. It was this concern
regarding illegal sales that led to the enactment of the
California Cigarette and Tobacco Products Licensing Act of 2003
[AB 71 (Horton), Chapter 890, Statutes of 2003], which
established a comprehensive licensing program for retailers,
manufacturers, distributors, and importers of cigarettes and
tobacco products. According to the BOE, the California
Cigarette and Tobacco Licensing Act of 2003 has been successful
in reducing illegal sales.
The American Cancer Society Cancer Action Network (ACS CAN) is
the sponsor of this bill and states California has one of the
lowest tobacco taxes in the nation, currently ranking 35th with
a tax of 0.87. ACS CAN notes the average nationwide cigarette
tax in $1.60 per pack, and that local control of tobacco taxes
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is a critical tool in allowing communities to set public health
priorities that can better meet the needs of its citizens. ACS
CAN concludes tobacco taxes are one of the most effective ways
to drive down smoking and studies have shown communities benefit
when those tobacco taxes are passed.
The American Heart Association/American Stroke Association
(AHA/ASA) states regular, significant increases in the retail
price of cigarettes reduce the number of people who begin
smoking and increase the number of smokers who quit. AHA/ASA
points out for every 10% increase in the price of cigarettes;
there is a 4% reduction in overall cigarette consumption and a
0.5% reduction in youth consumption.
The California Distributor Association opposes this bill stating
it would create massive confusion for retailers and consumers
alike because small businesses in the same area but different
municipalities will have different tax-rates, allowing the store
with the lower tax a business advantage.
Analysis Prepared by:
Lara Flynn / P.H. & D.S. / (916) 319-2097 FN:
0002647
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