Proposition 56: Cigarette Tax to Fund Healthcare, Tobacco Use Prevention, Research and Law Enforcement.

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Passed
The Question: 

Should California increase taxes on tobacco and electronic cigarette products containing nicotine to fund healthcare and tobacco-control programs? 

The Situation: 

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.

The Proposal: 
  • 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.  
Fiscal Effect: 

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).

What a YES or NO Vote Means
A YES Vote Means: 

State excise tax on cigarettes would increase by $2.00 per pack from 87 cents to $2.87. State excise tax on other tobacco products would increase by a similar amount. State excise tax would also be applied to electronic cigarettes. Revenue from these higher taxes would be used for many purposes, but primarily to augment spending on health care for low-income Californians.

A NO Vote Means: 

No changes would be made to existing state taxes on cigarettes, other tobacco products, and electronic cigarettes.

Support & Opposition
Supporters Say: 
  • Cigarette smoking kills more than 40,000 Californians annually.  Tobacco tax increases are one of the most effective ways to reduce smoking and other tobacco use.                                    
  • Taxpayers pay $3.58 billion every year for tobacco-related healthcare costs. Under Prop. 56, tobacco users will help to offset this cost.                                   
  • Prop. 56 doesn’t take a dime from schools; it protects school funding while helping to keep our kids from getting hooked on deadly, addictive tobacco.  
Opponents Say: 
  • Prop. 56 is not what it appears to be. Insurance companies will be paid $1 billion more for treating the same Medi-Cal patients they treat today.                        
  • Prop. 56 allocates just 13% of new tobacco tax money to treat smokers or stop kids from starting.
  • Prop. 56 will undermine our Constitution’s school funding guarantee, diverting at least $600 million a year to health insurance companies and other wealthy special interests.        
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