Colorado Voters May Raise Tobacco Tax & Impose a New Tax on E-Cigarettes
Do you support or oppose Colorado raising its tobacco tax and imposing a new tax on e-cigarettes?
by The 2020 Causes Voter Center | 10.19.20
What the Initiative Does
This legislatively referred state statute, known as Proposition EE, would incrementally increase Colorado’s existing tax on cigarette and tobacco products and establish minimum price requirements for cigarettes. It would also create a new tax on nicotine products, such as e-cigarettes.
Specifics of the tax changes by product type are below:
- Cigarettes: Currently, cigarettes in Colorado are taxed at a statutory rate of 20 cents per pack (one cent per cigarette) and an additional constitutional tax of 64 cents per back (3.2 cents for cigarette), for a total state-levied cigarette tax of 84 cents per pack. Under Proposition EE, the statutory cigarette tax rate would increase to $1.80 per pack by July 2027, thereby raising the total state-levied cigarette tax to $2.64 per pack.
- Tobacco products: Tobacco products in Colorado are currently taxed at a statutory rate of 20% of the manufacturer’s life price (MLP) and a constitutional rate of 20% of the MLP, summing up to a total tax rate of 40% of the MLP. Proposition EE would incrementally raise the statutory tax rate by 22% by July 2027 for a new total state-levied tobacco products tax rate of 62% of the MLP.
- Nicotine products: At present, Colorado does not tax nicotine products such as e-cigarettes. Under Proposition EE, a tax matching that on tobacco products would be levied on nicotine products. This rate would begin at 30% of the MLP in 2021, increasing gradually to 62% of the MLP by July 2027.
Revenue from cigarettes, tobacco products and nicotine products would be dedicated to health and education programs, including the preschool programs cash fund, state education fund, rural schools cash fund, housing development grant fund, tobacco tax cash fund, tobacco education programs fund, and state general fund.
Argument in Favor
Raising tax rates on cigarettes, tobacco products and nicotine products will yield twofold benefits for Coloradoans. From a revenue perspective, these increased taxes will help Colorado raise additional education funding to offset budgetary shortfalls due to the COVID-19 pandemic. From a public health perspective, increasing the costs of cigarettes, tobacco products and nicotine products will help make these products less accessible to youth, who are at high risk of lifelong addiction if they start using these products at young ages.
Taxes on cigarettes, tobacco and nicotine products are regressive, often harming low-income users of these products. They can also harm small businesses that sell these products, which is something that small businesses can ill-afford during the COVID-19 pandemic. Finally, the reduction of taxes on modified-risk tobacco products, possibly at the request of cigarette giant Altria, raises the possibility that this proposition was crafted in bad faith and doesn’t have Coloradoans’ best interests at heart.
A Brighter, Healthier Future for Colorado's Kids (Yes on EE) is the main group supporting Proposition EE. Its website lists over 100 endorsing organizations, including the American Lung Association, Susan G. Komen Cancer Foundation, American Heart Association and Colorado Academy of Family Physicians, that support Proposition EE.
The Colorado Children’s Campaign is among a number of children’s advocacy groups that supports Proposition EE. It says:
“This bill will offer additional preschool programming to children from families with low incomes and to children at-risk of entering kindergarten with low levels of school readiness. This will allow targeted resources to children who benefit most from high-quality early childhood education. ... the measure would also have substantial impact on Colorado’s highest in the nation rate of youth vaping by putting the price of vaping and tobacco products out of reach. In Colorado, 5,100 people die each year from smoking, and 91,000 kids under 18 right now will eventually die from smoking. Colorado also has the nation’s highest rate of nicotine vaping among youth, with over 27% of high school students using e-cigarettes."
Colorado Gov. Jared Polis (D) supports this proposition. When he signed legislation referring Proposition EE to the statewide ballot in July 2020, Gov. Polis said:
"Colorado voters will have a really important opportunity this November to say it's time that Colorado no longer be the top state for teen vaping. It's time that we help make sure that less kids get hooked on nicotine, a habit that is hard to kick and often stays for life and will shorten their lives."
Proposition EE is opposed by No on EE--A Bad Deal for Colorado. The official Blue Book argument against Proposition EE observes that increasing taxes on cigarette, tobacco, and nicotine products is regressive, imposing a particular financial burden on low-income people who choose to use these products. Due to these products’ addictive natures, users may continue to purchase them even after a tax increase, constraining budgets in other areas in order to do so. Additionally, the Blue Book argument observes that small businesses could be hurt by an increased cigarette, tobacco and nicotine products tax:
“Raising taxes and establishing a minimum purchase price hurts business owners. This is particularly true for businesses that sell low-cost products, or that are in areas of the state where local governments have already imposed cigarette, tobacco, and nicotine taxes. Businesses selling these products may see a decline in sales, which can be particularly harmful for small, local businesses at a time when many are already struggling.”
A group of discount cigarette makers, including Liggett Group LLC, Vector Tobacco Inc., and Xcalibur International Ltd., filed a lawsuit against the state of Colorado and several Democrats, including Gov. Polis, the attorney general, and Democratic lawmakers. In their suit, the cigarette makers allege that in crafting Proposition EE, state officials made a “back room deal” with cigarette giant Altria (previously known as Philip Morris) to fix prices at high levels, effectively eliminating competition from discount brands such as themselves.
The plaintiffs’ complaint centers around the fact that Proposition EE would, while raising taxes on tobacco products, simultaneously reduce taxes on a special subset of items called modified-risk tobacco products (MRTP). Although there aren’t many products with the MRTP designation, Altria happens to manufacture a third of the items on the list; and it sees MRTPs as the future of its business.
Amanda Wheeler, leader of the Rocky Mountain Smoke Free Alliance, a trade group representing independent vape shops which opposes Proposition EE, says that Altria’s lobbyists at the Colorado Capitol required the inclusion of the MRTP tax break:
“It was something they were very, very protective of and it seemed like it was a very high priority for them… Altria flat out refused [a request to remove the MRTP provision], because they said that’s a very high priority to them because that’s kind of what’s in their future.”
Colorado has one of the highest rates of youth vaping in the U.S., along with one of the nation’s lowest tax rates on cigarettes and tobacco products and no tax on vaping products. In other areas, it has been observed that higher taxes on cigarettes, tobacco products, and vaping products usually result in higher prices which deter these products’ use, especially among youth and young adults.
Summary by Lorelei Yang
(Photo Credit: iStockphoto.com / alfexe)
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