Tobacco tax hike gets first hearing in Senate

A proposal to make Alaska’s tobacco taxes the fifth-highest in the United States met a mixed reception from the Senate Labor and Commerce Committee on Tuesday as Senate Bill 131 received its first look in the Alaska Senate.

The bill is one of three that raise consumption taxes as part of Gov. Bill Walker’s comprehensive budget plan. To eliminate the state’s $3.7 billion annual deficit, the governor has proposed raising three consumption taxes (tobacco, alcohol and fuel), raising three business taxes (mining, fishing and cruise ship tourism) and making three large-scale changes (oil and gas tax credits, income tax and Permanent Fund investment spending).

The tax change is expected to raise about $29 million more per year; of that, $2 million will go to a quit-smoking fund. The rest will go into the state’s general fund.

“The governor’s intent here … was to make sure everyone pays a little bit,” said Ken Alper, head of the tax division of the Alaska Department of Revenue. Alper, together with Brandon Spanos, deputy director of the division, were presenting the proposal to lawmakers.

The members of the committee appeared open to the idea – with qualifications.

“This is one that, if it gets people to quit smoking, I’m all for it,” said Sen. Kevin Meyer, R-Anchorage, Senate President and a member of the committee.

He went on to say that the tax increase could have a cost for people who don’t or can’t quit. “Now they have to choose between a pack of cigarettes and having food for their kid’s lunch,” he said.

Sen. Mia Costello, R-Anchorage, added that there is some question as to whether cigarette taxes are regressive taxes.

Studies funded by the state have found that smokers are more likely to be Alaska Native, poor or less-educated, and an increase in smoking taxes is primarily a tax on poorer Alaskans. That argument featured heavily when the City and Borough of Juneau Assembly voted to increase the CBJ’s tobacco tax last year.

“I do think it does trend toward certain social groups, certain income levels,” Alper said, but “there was no intent or desire to single out any particular demographic or user group.”

According to the text of the bill, the state’s tax on a single cigarette would rise from 10 cents to 15 cents. That would increase the cost of a pack of 20 by $3.

The tax on non-cigarette products – snuff, chew, cigars and rolling tobacco – will increase from 75 percent of the wholesale price to 100 percent of the wholesale price.

Perhaps the biggest change will be for electronic cigarettes, a product growing in popularity, which will be taxed for the first time. Taxes on e-cigarettes and vaporizers will rise from 0 percent to 100 percent of the wholesale price.

Sen. Gary Stevens, R-Kodiak and a member of the commerce committee, asked whether that’s a wise thing to do if people are switching from tobacco’s known negative health effects to e-cigarettes, which are believed to have fewer (if any) negative health effects.

“I don’t think of electronic smoking products as specifically for people trying to get off nicotine,” Alper said, contrasting them with nicotine patches, gum and pills, which are exempted from the tobacco tax as “smoking cessation products.”

Were the Food and Drug Administration to label e-cigarettes as smoking cessation products, they would not be taxed.

After its hearing, the committee held the bill ahead of public testimony scheduled to begin at 6 p.m., after press deadline.

Companion legislation in the House, House Bill 304, has not yet received a hearing in the House Labor and Commerce Committee.

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