Tobacco tax clears final Senate committee

  • Eric Heaukulani sells cigarettes at Irie Smoke Shop. (Laura Ruminski/West Hawaii Today)

  • Brian Baker shows customers merchandise at Irie Smoke Shop. (Laura Ruminski/West awaii Today)

KAILUA-KONA — After a decision by the state Senate Committee on Ways and Means Thursday, a new tobacco tax is one reading shy of heading to the House of Representatives for consideration.

Senate Bill 887 would raise the tax on cigarettes and little cigars from 16 cents per unit to 21 cents per unit, an increase of $1 in price per pack of 20 cigarettes. It would bump the total tax on a standard pack of cigarettes to $4.20.

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WAM amended the measure, changing its effective date from July 1, 2020, to 2050. However, Sen. Dru Kanuha (D-Kona, Ka’u), explained the tactic isn’t an indicator that legislators don’t want the bill. Rather, it allows room to negotiate on an implementation date if the bill clears the House and heads to conference committee.

“Raising the tax on cigarettes and little cigars sold in the state will protect individuals of all ages, especially adolescents and children, from tobacco dependency and the illnesses and the premature death associated with smoking,” Kanuha wrote in a text message. “At the same time, the revenues raised by this measure will help finance the public health system, which so many smokers ultimately rely on.”

Kanuha has been outspoken against tobacco use since he entered politics as a Kona county councilman six years ago. In 2013, he introduced and passed a bill making it illegal for vendors to sell cigarettes to anyone under the age of 21. At the time, Hawaii County was only the fourth county or municipality in the United States to transition the legal age from 18 years to 21 years.

SB 887 contends that increasing tobacco taxes “… is the most effective way to reduce smoking and prevent young people from becoming daily smokers.”

It goes on to say that a 10 percent bump in tobacco tax results in a decline of smoking in adults at a rate of 2 percent, in young adults by around 3.5 percent and in kids by 6-7 percent. The source of those statistics is not listed in the bill and Kanuha was unavailable for further comment Thursday.

However, health organizations back up Kanuha’s stance on the correlation between taxation and fewer smokers, specifically taxation felt by the young and the poor — the point being not to break their banks but to discourage them enough financially to quit.

“Small tax increase amounts do not produce significant public health benefits or cost savings because tobacco companies can easily offset the beneficial impact of such small increases with temporary price cuts, coupons, and other promotional discounting,” Cory Chun, government relations director for the Hawaii Pacific American Cancer Society Cancer Action Network, wrote in testimony.

But not everyone agrees with Kanuha and Chun.

Jose Miranda-Kepa, the general manager of Irie Hawaii Smoke Shop Pahoa, testified that people will simply go elsewhere for their cigarettes — like online.

In written testimony, he also characterized tobacco excise taxes as “some of the most regressive forms of taxation that fall most heavily on individuals with lower incomes.”

Monies collected by the tax would flow to a host of special funds, some of which were already recipients of support from the tax, while others would be added to the list with more cash to spread around. The Hawaii cancer research special fund was receiving 2 cents per cigarette. That number would jump to 3 cents if the new tax were enacted.

The general fund would receive 1.67 cents per cigarette to repay medical loans of primary care physicians, an incentive to attract and retain doctors in a state ever short of them. The health system special fund would also receive 1.66 cents per cigarette. Neither has been a benefactor of the tobacco tax to this point.

The trauma special fund would continue to receive 1.125 cents per cigarette up to $7.4 million. The emergency medical services special fund would also remain unchanged, receiving 1.25 cents per cigarette up to $8.8 million.

The community health centers special fund would get 2.92 cents per cigarette, up from 1.25 cents under the current tax, but the maximum amount it could receive would remain capped at $8.8 million.

While money to all these health organizations appears only to be a positive, the Tax Foundation of Hawaii noted a point of diminishing returns in testimony objecting to the passage of SB 887.

“Revenues produced by the tobacco tax have been in steady decline over the past few years despite tax rate increases, and hoisting the smoking age to 21 in the 2015 session certainly didn’t reverse the trend,” the testimony read.

“Do we really need an elaborate study to tell ourselves that fiscal reliance on funds from a sin tax is inadvisable or outright dangerous? If the goal is to affect social behavior, use of the tax law is not the most effective way to do so.”

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Miranda-Kepa agreed Thursday when reacting to news the proposed tax had cleared the Senate WAM hurdle, equating the measure to a guise of government protecting people from themselves by unfairly targeting the pocketbooks of one demographic.

“If people feel like they want to spend their hard-earned money on whatever product it is, it’s up to them to make that decision,” he said.

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