Proposition 56: Cigarette Tax to Fund Healthcare, Tobacco Use Prevention, Research and Law Enforcement.
Should California increase taxes on tobacco and electronic cigarette products containing nicotine to fund healthcare and tobacco-control programs?
Tobacco products are subject to state and federal excise taxes. California imposes excise taxes on distributors plus sales and local taxes paid by consumers on the final price at the time of purchase. California’s average retail price for a pack of cigarettes is about $6 which includes about $2.40 in taxes—87 cents state excise tax, $1.01 federal excise tax, and an average of 50-60 cents sales tax. California’s current excise tax on other tobacco products is equivalent to $1.37 per pack of cigarettes.
Electronic cigarettes are not subject to state or federal excise taxes, but are subject to state and local sales and use taxes.
- Prop. 56 would increase the amount of state excise tax on cigarettes by $2 per pack, totaling $2.87, with a per-pack equivalent of $3.37 excise tax for other tobacco products, including electronic cigarettes.
- Revenue from the excise tax increase would go into a new fund to support existing tobacco-control and healthcare programs, with some monies going to enforcement of tobacco-related laws.
- Prop. 56 would amend the California Constitution to exempt the measure’s spending from the state’s spending limit, and exempt revenues from minimum funding requirements for education, similar to earlier voter-approved tobacco taxes.
The Legislative Analyst’s Office estimates that, as a result of Prop. 56, consumers may reduce their purchases of tobacco products and change how they buy those products, such as through Internet purchases. If people do consume fewer cigarettes and other tobacco products because of Prop. 56, the current health and wellness programs paid for by existing taxes may receive less funding. Money from Prop. 56 would be required to backfill those losses, in an estimated amount of $200 million to $230 million.
Nevertheless, Prop. 56 is estimated to generate $1.3 billion to $1.6 billion in new excise-tax annual revenue on cigarettes and other tobacco products (including e-cigarettes).