July 27, 2017
Increased tobacco tax has double-edged impact
SACRAMENTO – (INT) - Last November, California voters approved the biggest increase in cigarette taxes since the state first began levying tobacco.

When the tax went into effect in April, smokers saw the average cost of a pack of cigarettes soar from under $6 to up to $9, making California one of the most expensive states in which to buy cigarettes. The result was a two-pronged effect.

California cigarette sales have declined significantly since prices went up. In fact, the drop is even sharper than the state anticipated, which could spell trouble for state coffers.

But what’s beneficial for public health isn’t necessarily good for the state budget, at least in the near term.

“Sales are still more sluggish than had been originally anticipated,” H.D. Palmer, spokesman for the Department of Finance, said via email. ”Given that we only have two months of data, it is too early to predict a trend. If the current trend holds, we would likely make a revision to our expected decline in consumption.”

How cigarette tax revenue would be spent became a hot-button issue in state budget negotiations last month. Ultimately, legislators and Governor Brown agreed to divide the new revenue between increased payments to physicians and general Medi-Cal expenses.

Palmer said that if cigarette tax revenues continue to come in lower than anticipated, the administration would need to identify an alternative revenue source or propose cutbacks to Medi-Cal.

Of course, tax revenue is just one side of the equation when it comes to the fiscal effects of the new cigarette tax. Savings from lower health care costs as more low-income smokers quit are not factored into the revenue side of the state budget.
Story Date: July 17, 2017
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