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On January 1, 2017, the KHI News Service became part of KCUR public radio’s new initiative, the Kansas News Service. The Kansas News Service will continue to cover health policy news and broaden its scope to include education and politics. All stories produced by the former KHI News Service are archived here. Stories and photos may be republished at no cost with proper attribution and a link back to KHI.org.

Tobacco-funded groups push back on proposed tax

Those with ties to industry speaking to legislators include Heartland Institute, former ATF agent

By Andy Marso | March 17, 2015

Tobacco-funded groups push back on proposed tax
Photo by Andy Marso Rich Marianos, a former federal agent who now is a consultant for Altria, addresses legislators Monday about cigarette smuggling from low-tax states to high-tax states.

Several dozen legislators and lobbyists filed into a committee room Monday for a video presentation, toting slices of pizza and cans of soda.

The lunch was sponsored in part by Altria, the parent company of Philip Morris USA and other tobacco sellers.

The presentation was courtesy of Rich Marianos, a former agent with the federal Bureau of Alcohol, Tobacco, Firearms and Explosives, who told those gathered that when states increase tobacco taxes well above their neighbors’ rates, it opens up an enticing black market.

“When there is that tax discrepancy, it creates a world for criminals and smugglers,” said Marianos, who works as a consultant for Altria.

Tobacco companies have largely avoided trying to directly influence the Kansas Legislature’s ongoing debate over whether to raise cigarette taxes by $1.50 per pack to cover a portion of the general fund's projected $650 million budget hole. But groups and individuals funded by the industry have filled that role, warning legislators about what they say would be the consequences of the tax hike.

Marianos is one of the headliners — a 27-year ATF veteran who speaks of the history of cigarette smuggling from low-tax states like North Carolina to high-tax states like New York from the position of someone who has been on the front lines investigating it.

“New York is just out of control,” Marianos said. “It’s $14 for a pack of cigarettes, it’s $140 for a carton. So some of the less-taxed states make it extremely lucrative for criminals in New York.”

Tracy Russell, representing the anti-tobacco coalition Kansans for a Healthy Future, questioned whether the tobacco companies Altria represents are truly concerned that tobacco taxes increase smuggling, because they get paid no matter in which state the cigarettes are purchased.

Russell said she thinks the companies’ real concern might be that increased tobacco taxes are proven to reduce smoking rates, thereby reducing profits for the industry.

She said there’s little evidence that tobacco smuggling is a “widespread problem” throughout the country, which is why the industry tends to point to the Northeast corridor.

“The industry focuses mainly on areas that have a much higher tobacco tax than what is being proposed in Kansas and does not present an accurate comparison of what could happen in Kansas,” Russell said.

Marianos said smuggling is also a problem in the Midwest. But he said the force behind it in the middle of the country is not necessarily that cigarette taxes in some Midwestern states are too high, but that the tax in Missouri — the lowest in the country at 17 cents per pack — is too low.

“Missouri’s doing no favors for anybody,” Marianos said.

The Heartland Institute, a Chicago-based think tank with documented ties to the tobacco industry, also is weighing in on the Kansas tax proposal.

The institute's John Nothdurft has composed a webpage that states the tobacco tax will fall disproportionately on low-income Kansans, harm businesses that rely on tobacco taxes and fail to bring in the revenue expected as customers quit or buy from neighboring states.

“Tobacco taxes rarely bring in the revenues their proponents say they will,” Northdruft writes.

The page provides a series of links to other documents questioning the effectiveness and wisdom of tobacco taxes. A disclaimer at the bottom of the page warns “Nothing in this Research & Commentary is intended to influence the passage of legislation” but also says the institute can make experts available to testify or speak to a legislative caucus.

The institute's position that cigarette taxes are not a reliable source of revenue runs counter to research presented to legislators earlier this month by Frank Chaloupka, an economics professor from the University of Chicago.

Chaloupka, whose research on the proposed Kansas increase was funded by a grant from the National Institutes of Health, said he has studied tobacco tax increases in many states for more than a decade. His research shows that states that raise the tax bring in new revenue while also saving on health care costs because some residents will quit, but not in numbers large enough to offset the tax revenue gain from those who continue smoking.

Russell said those should be the driving factors that legislators consider when looking at the tax increase. She added that smuggling can be minimized with the use of high-tech tax stamps and better enforcement.

“Not enacting a tobacco tax increase is an extreme answer to a minor concern for which there are other remedies,” Russell said. “It is time to increase the only tax that comes with health benefits.”