Victory for smokers as another Philly “sin tax” rejected, leaving schools underfunded
After a 16-0 vote in Philadelphia City Council, a plan to add a $2 per pack tax to cigarettes—which would have, in turn, tossed about $45 million to the Philly school district—failed to gain the momentum it needed when put before the state legislature. And now it’s dead. And for now, the hole remains.
That bill needed to be approved by both City Council and the state Legislature because of something called the Sterling Act, a piece of Pennsylvania legislation put into effect in 1932 which “conferred Philadelphia with the authority to impose taxes that are exempt from state taxes and licenses”—but requires state approval.
The cigarette tax is just the latest in a long line of so-called sin taxes—“a state-sponsored tax that is added to products or services that are seen as vices… levied by governments to discourage individuals from partaking in such activities without making the use of the products illegal,” according to Investopedia—Philadelphia has tried, and failed, to pursue in the name of something wholesome.
Three substances have been targeted over the last three years: Soda, cigarettes, liquor. The reasons are numerous: Sin taxes not only curb the use of these substances, which have proven to cause numerous diseases over the years (and higher healthcare costs), but for the true sugar, nicotine and alcohol addicts amongst us, who will spend any number of U.S. dollars to feed their habit, more cash goes into the state coffers and can fund all sorts of initiatives. It all sounds nice, maybe a little crass, but aside from small wins here and there, Big Government’s push to hit citizens in their vice fund has failed.
Health has become a new agent for governments to flex their muscles over the past generation. And in mid-2010, Mayor Nutter proposed both a tax on soda (sugary drinks, it was called at the time) and a trash fee for city residents. Trash was set to be $300 per year ($200 for low-income residents) and the sugary drink tax the mayor proposed was 2 cents per ounce, charged to retailers, and presumably passed onto the consumer. A tax on the corn-syrupy stuff was set to yield $77 million per year and would have begun in January 2011.
The administration said the fee and tax would help the city fight obesity, keep the streets clean, and generate new revenue to balance the city budget.
But there was pushback almost immediately. Mostly from the beverage industry, who’ve made a habit of lobbying City Council.
And that wasn’t the only problem. Among the arguments against a soda tax: A switch to sin taxes often means “more bang for your buck,” and doesn’t actually curb obesity, which is the opposite of what the government claimed. Additionally, in order to keep up sales, store owners could—and likely, would—take to raising the price of everything in their stores equally—not just soda. Which would’ve meant the price of the zero-calorie bottled water going up the same amount as the Mountain Dew.
Whether or not that initial fear could ever happen was never realized. Because by the end of March 2010, anti-soda tax rallies were held at City Hall. Beverage delivery trucks pasted a magnet to their rear ends reading, “Philly Jobs. Not Taxes.” And it was just about the only time you’re going to see Councilman Brian O’Neill rally supporters in Center City.
In addition to anti-tax Republicans and business owners, unions representing beverage workers got in on the mix, with Teamsters Local Union 830 joining a protest in Center City. The secretary-treasurer of that union, Danny Grace, noted at the time: “Mayor Nutter will not mess with our soda people in Philadelphia.” Seven states were considering a similar tax at the time. Few passed it, and two years later, New York City seemed to have been the only ones to get substantial taxes and limits on sugary drinks, which was infamously mocked by Alaska celebrity Sarah Palin at the 2012 National Republican Convention.
Since Council did not pass the soda tax that year, they chose to raise property taxes to 9.9 percent, tax smokeless tobacco, and increased garbage pickup fees—but just for businesses.
The soda tax was brought up again in mid-2011, though, this time, directly tied to Philly school funding. Two weeks after the initial proposal, there were more protests by the usual suspects. Councilman Jim Kenney called the tax “D.O.A.” And it was. It failed miserably, again. And, again, City Council raised property taxes. And parking rates.
Then 2012 came along, and Big Beverage was spending a ton of cash in Philly. An American Beverage Association front group called ‘Smart Taxpayers Exposing Waste’ began running online ads trying to expose the Philly government (and others), noting how much money we were spending on anti-soda ads through the citywide program, Get Healthy Philly, with federal stimulus money. The American Beverage Association had spent $238,921 in Philly in just the first three months of 2012.
In March, Nutter actually attended something called the ‘Sugary Drink Summit’—which is not as cool as it sounds. This took place soon after Mayor Michael Bloomberg’s ban on the biggest Big Gulps, and Nutter called Bloomberg’s plan an idea “worth evaluating and considering.”
Now there’s now. And according to the Philadelphia Board of Ethics, the American Beverage Association is still at it—spending $36,750 during the first quarter of 2013, which are the latest available numbers. That’s significantly less than they’d been spending last year, which likely shows they’re comfortable with where they’ve come over the last two years.
“Mayor Nutter’s proposal failed for a couple of reasons, not the least of which is people just don’t want it. Philadelphians can’t, and we all can’t afford to pay a penny more for our groceries and there’s a line that people just wont accept. Which is they can make the choice that’s right for them without government help,” American Beverage Association communications director Chris Gindlesperger told me last year.
But you know who’s not lobbying in Philadelphia? Big Tobacco.
It took about six years of serious debate in Philadelphia to finally pass a ban on cigarettes in most city bars. And since the ban on spots that make less than 20 percent of their sales in food in 2006, the amount of smokers in the city—and nationally—has gone down, a lot. Which may have something to do with the rest of the state instating a similar law in 2008. Most states have followed suit.
According to a Gallup survey released last summer, only 20 percent of Americans say they smoke—an all-time low in the U.S. That’s down from 45 percent of adults in 1955!
Since 2006, the city has barely budged on cigarette initiatives and other efforts to make everyone a bit healthier, even though the mayor’s Get Healthy Philly program has been pushing them to do so for a while and the city’s health policies have been pushing for more ways to cut back on cigarettes for a while. As City Paper noted last week, the $2 per pack cigarette tax put forth this year coincided with the city’s long-term plan for getting residents to quit.
“We engaged youth, the community, and academic partners to assess and change tobacco pricing and norms. Through economic modeling, we discovered that a $2 per pack price increase would cut the adult smoking rate in half by 2050 and save over $100 million in annual healthcare and productivity costs,” reads the Health Department’s 2011-2012 policy report.
Which means—if we’re rationalizing this correctly—that any cigarette tax, especially, would only bring in temporary cash, since the point of the tax is to both raise money and get to the point where you’re…not raising money. And doing so forces the city’s children to rely on a tax on a product that kills people. And if that’s the case, such a tax would encourage people to slowly kill themselves in order to raise money for Philadelphia’s future generations.
Of course, as weird as it may sound, it’s already happening. The state of Pennsylvania taxes cigarettes at $1.60 per pack of 20 cigarettes ($0.08 per stick) and $16 per carton of 10 packs. Of the revenue generated from smokers in the commonwealth, $30.73 million goes annually to the Children’s Health Insurance Program and $20.49 million goes annually to the Agricultural Conservation Easement Purchase Fund, which helps preserve Pennsylvania’s farmland.
Nationally, President Obama raised taxes on tobacco in 2009, from 39 cents to $1.01 per pack, which was the largest cigarette tax hike in U.S. history. Conservatives often used this example to claim that despite the presidents rhetoric, Obama did, indeed, raise taxes on the poor during his first term, since cigarette smokers are more likely to be low-income. Obama proposed another hike in April 2013, of 94 cents, and said he would have used the $78 billion raised to fund early childhood education.
Obama’s second tobacco tax died, but before it did, the Congressional Budget Office found that taxing cigarettes at $1.51 per pack (less than Obama’s proposal) would mean “4.3 percent fewer 18-to-24-year-olds would be smokers than would be the case under current law” by 2021. The tax hike, they found, would also slow the U.S. death rate.
So, is a little bit more taxing in Philadelphia really going to hurt anyone? According to Wawa and other business groups, yes.
The Chester Heights-based corporation—who’ve really enhanced their deli over the last few years, by the way—circulated a document throughout Harrisburg this spring warning that if a cigarette tax went into place this year, your friendly neighborhood drug dealer could start pushing Marlboros in addition to his or her usual repertoire.
“Black-market cigarettes result in tax revenue loss for the Commonwealth of Pennsylvania and loss of sales revenue and customer traffic for legitimate tobacco retailers,” reads a document the company circulated in Harrisburg.
And to make matters worse, smokers, they claim, could leave the city to buy their fix. “A large tax increase in Philadelphia will result in ‘border bleed’ for tobacco products currently being sold in Philadelphia,” Wawa’s document additionally reads.
At least one smoker seems to agree. “The tax increase actually makes cigarette sales to minors more common since it encourages the growth of black market loose pack sales on the streets… by people who’d happily sell a pack to Mickey Mouse if he wanted one. The people who push these taxes know that… but they don’t care,” says Michael McFadden, a West Philadelphia resident and author of the 2006 book ‘Dissecting Antismokers Brains,’ about the rationalizations to ban smoking all over the world.
He adds: “When it’s looked at fairly, instead of through twists from advocacy groups, smokers already pay enough taxes on their products that they are not only paying for their own health care but are also subsidizing the health care of nonsmokers… in particular the health care of the children of nonsmokers.”
The cigarette tax stalling in the Legislature but making it through Council is more than could be said about this year’s liquor-by-the-drink tax proposal, which the city was attempting to raise from 10 percent to 15 percent. This would have put that price on every individual drink—beers, wine, cocktails—sold in Philadelphia. This was seen as too controversial for City Council to do anything with, just like Councilwoman Blondell Reynolds Brown’s idea to keep bars open until 3am, to bring in extra cash for schools.
“When they’re taxing cigarettes, the view is they’re penalizing some big company somewhere else. And, whereas, essentially it’s local restaurants and bars that fear they will take the heat from the liquor tax,” noted Zack Stalberg, CEO of good government group the Committee of Seventy, when we asked him about this in the midst of the fight. “You think one sin tax, another sin tax, what’s the difference. But the fact is, liquor-by-the-drink tax has a constituency, and cigarette taxes have a much-less organized or politically potent constituency…Where do the ward leaders have their meetings? In a bar.”
At the end of the budget process, it’s not unusual for the city to go to the state to get approval. Of course, it was all just a little bit easier when Democrat, former Philly mayor Ed Rendell was governor.
And like the failed sugary drink taxes of yesteryear, stopping cigarette price gouges has brought together unlikely frienemies. The Koch-backed Americans for Prosperity of Pennsylvania has attempted to stop all sort of things from going through the Pennsylvania budget for a while—including both the Medicaid expansion and this cigarette tax. Because encouraging others to be healthy, apparently, just isn’t their thing.
That said, it was reported earlier today that the cigarette tax may not be dead after all—it wasn’t ever voted upon, and, it’s said that Gov. Corbett is sort of OK with letting Philadelphians tax their smokes. So, we all may be lucky enough to break our bank for vices, after all, maybe, possibly…when the Legislature re-convenes in the fall.
Follow Randy on Twitter: @RandyLoBasso