Bloomberg News

California Tobacco Tax Pits Lance Armstrong Versus Altria

May 23, 2012

Livestrong Foundation Founder and Chairman Lance Armstrong. Photographer: Ramin Talaie/Bloomberg

Livestrong Foundation Founder and Chairman Lance Armstrong. Photographer: Ramin Talaie/Bloomberg

Lance Armstrong, the cycling champion and cancer survivor, is putting $1.5 million behind a ballot measure to add $1 a pack to California’s cigarette tax, even as the tobacco industry has put up most of $40.7 million aimed at stopping it.

Voters in the June 5 presidential primary election will decide whether to raise the tax to $1.87 a pack and steer the additional revenue toward cancer research and stop-smoking programs. Leading the opposition are Altria Group Inc. (MO:US) and Reynolds American Inc. (RAI:US), the parent of R.J. Reynolds Tobacco, the two biggest sellers in the U.S.

“I resent the tobacco industry’s ability to influence public policy in their favor, time and time again, for a product that kills when used as directed,” Armstrong said through a spokeswoman, Katherine McLane.

His nonprofit cancer charity, Livestrong, is supporting Proposition 29 along with the American Cancer Society and the American Heart Association. Armstrong overcame testicular cancer to win the Tour de France seven times.

If the measure is approved, California would become the latest state using a tax increase to raise the price of tobacco products to discourage smoking. Consumers pay the highest state tax at $4.35 a pack in New York, according to the Centers for Disease Control and Prevention. Nationally, the average state tax is $1.46.

The proposed California increase would push the average price of a pack to about $7.50, said Brian Miller, a spokesman for the Equalization Board, the state’s tax administrator, citing the nonpartisan Legislative Analyst’s Office.

Unchanged Since 1998

Smoking is the leading cause of preventable death and illness in the U.S., according to the CDC. The agency said California hasn’t raised its 87-cents-a-pack tax since 1998.

Altria, through its subsidiary companies Philip Morris USA, John Middleton Co. and U.S. Smokeless Tobacco, has given a combined $27.3 million to defeat Proposition 29, according to campaign data compiled by MapLight, a nonpartisan research organization based in Berkeley that tracks campaign donations.

“Altria opposes additional targeted tax increases on tobacco,” David Sutton, a spokesman for Richmond, Virginia- based Altria, said by e-mail. He called the ballot initiative a “flawed” measure.

Reynolds American’s R.J. Reynolds Tobacco, American Snuff and Santa Fe Natural Tobacco units gave $12.1 million, according to MapLight data. Reynolds, based in Winston-Salem, North Carolina, announced in March that it plans to cut 10 percent of its U.S. workforce by the end of 2014 as demand for cigarettes wanes. A Reynolds spokesman, David P. Howard, referred questions to a coalition opposing the measure.

Republican Party Donor

The California Republican Party contributed $1.2 million to fight the proposal, according to MapLight.

“I can think of a lot better uses for $40 million, like saving lives from cancer and other lethal diseases caused by tobacco,” Armstrong said.

Opponents say the initiative creates a nine-member committee to administer the funds that would duplicate existing programs and have little accountability to taxpayers.

“The language in the initiative is so ambiguous that it leaves opportunity for fraud and personal benefit,” George Runner, a member of the Equalization Board who spoke for the opposition, said by telephone. “And there is no ability for the Legislature to step back in and correct those loopholes.”

The proponents have raised about $8.6 million, according to MapLight, including $500,000 from New York Mayor Michael Bloomberg and $10,000 from Marc Benioff, chief executive officer of San Francisco-based Salesforce.com Inc. (CRM:US), the largest seller of online customer-management software. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

$735 Million Tax

The tax would generate about $735 million a year by fiscal 2014, the legislative analyst estimated.

The committee would be subject to audits, and there are provisions in the measure to guard against fraud and conflict of interest, said Jim Knox, vice president of legislative advocacy in the California division of the American Cancer Society, in a telephone interview.

“This is a smokescreen from the tobacco companies,” Knox said. “They’re donating this money because they know that increasing the tax will reduce sales and cut their profits.”

The $49.3 million raised in the cigarette-tax battle falls short of a state record, said Daniel Newman, MapLight president. Proposition 8, the 2008 measure that put an end to same-sex marriages in California, garnered nearly $107 million, according to the Helena, Montana-based National Institute on Money in State Politics.

Financial Stakes

The amount of cash flowing into the opposition effort isn’t unusual, Newman said.

“When there’s a financial interest in the success or failure of the initiative, the corporation can afford to spend as much as it needs because of the financial stakes involved,” Newman said.

Matthew Lanford, 41, owner of Santa Barbara Cigar & Tobacco, gave $1,000 in March to oppose the measure.

“A dollar on a pack of cigarettes -- people will adjust to that,” Lanford, who has owned his business for 16 years, said by telephone. “They are $10 a pack in New York and people are still buying them.”

Smokers will go to neighboring Nevada or Arizona and buy cartons at a time, he said. The state excise tax is 80 cents a pack in Nevada and $2 in Arizona, according to the CDC’s Office on Smoking and Health.

Test for Brown

The outcome of California’s cigarette tax vote may indicate the level of support for Governor Jerry Brown’s ballot initiative in November that would temporarily raise income and sales taxes to help close a $15.7 billion budget deficit.

“We will know a lot more on June 5, when that tobacco tax measure is voted on,” said Bill Whalen, a fellow at the Hoover Institution at Stanford University, near Palo Alto.

“If California voters do not sign off on an increase of cigarette taxes in a very nonsmoking state, and punishing tobacco companies that nobody likes, courtesy of ads featuring a cancer victim and Lance Armstrong, I’m not sure what tax increase can pass.”

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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Companies Mentioned

  • MO
    (Altria Group Inc)
    • $44.61 USD
    • 0.25
    • 0.56%
  • RAI
    (Reynolds American Inc)
    • $57.03 USD
    • -0.59
    • -1.03%
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