SUBJECT: TOBACCO; Cigarette Tax Stamp Fees; Tobacco Enforcement Special Fund; Hawaiʻi Tobacco Settlement Special Fund
BILL NUMBER: HB 2341 HD 1
INTRODUCED BY: House Committee on Health & Homelessness
EXECUTIVE SUMMARY: Amends the amount of funding for the Tobacco Enforcement Special Fund administered by the Department of the Attorney General by amending the amount of funds that the Tobacco Enforcement Special Fund can carry over at the end of the fiscal year; increasing the cigarette tax stamp fee and concurrently increasing the percentage of the cigarette tax stamp fee deposited to the Tobacco Enforcement Special Fund; and amending the amount of funds to be deposited to the credit of the Tobacco Enforcement Special Fund from tobacco settlement moneys.
SYNOPSIS: Amends section 28-15, HRS, to allow the tobacco enforcement special fund to accumulate funds up to $750,000 (up from $500,000) without the excess lapsing to the general fund.
Amends section 245-26, HRS, to increase the stamp fee from 1.7% to 2.2% of the value of tax stamps sold, and to route the additional 0.5% to the tobacco enforcement special fund.
Amends section 328L-2, HRS, to increase the earmark on tobacco settlement moneys to the tobacco enforcement special fund from $350,000 to $750,000 per fiscal year.
EFFECTIVE DATE: July 1, 3000.
STAFF COMMENTS: This is an Administration bill sponsored by the Department of Attorney General and designated ATG-02 (24).
The question that should be asked is what the purpose of the tobacco tax is. If the goal is to make people stop smoking by making it cost-prohibitive to smoke, then (a) it’s working, as hikes in the cigarette tax have begun to exert downward pressure on collections not only locally but also nationally, but (b) it shouldn’t be expected to raise revenue, because of (a). If the goal is really to stop the behavior, why are we not banning it?
As the Foundation’s previous President, Lowell Kalapa, wrote in the Tax Foundation of Hawaii’s weekly commentary on October 28, 2012:
Lawmakers seem to have a simplistic reaction to solving problems the solution to which plagues their constituents – tax it.
Probably the best example is what people like to call sin taxes, those excise taxes that are levied on tobacco and alcohol products. After all, smoking causes cancer and alcohol causes all sorts of problems including driving under the influence. Lawmakers and community advocates shake their heads and push for higher tax rates, arguing that making these products more expensive will deter folks from using these products.
The problem is that lawmakers also like the revenues that are generated from the sales of these products and, in some cases, they have tried to link the use and sale of these products with noble causes such as the funding of the Cancer Research Center that is currently being built. Again, the argument is that smokers should pay for programs and projects which seek to cure the related ill which in this case is cancer caused by smoking.
The irony is that arguments to increase the tax on tobacco and, more specifically, cigarettes, is a goal of getting smokers to quit while depending on the revenues from tobacco and cigarette taxes to fund an ongoing program, in this case the Cancer Research Center. So, which is it folks, stop smokers from smoking and if successful, there won’t be any revenues to fund the Cancer Research Center?
The fact of the matter is that it appears that both locally and nationally, higher taxes on cigarettes are influencing smokers as tax collections on the sale of cigarettes have fallen. Certainly, some of the decline is due to smokers actually quitting, but to some degree one has to suspect that some purchases were made via mail order from exempt Indian reservation outlets while others may be what is called gray market purchases, that is from sources outside the country.
What should come as a surprise is that most of the folks who have quit are of some means as they are more likely to recognize the health hazard caused by use of this product. That means most of those who are still smoking are among the lower-income members of our community. Thus, the tax is regressive, generating less and less collections from middle and higher-income individuals.
Kalapa, “Finding the Blame for What Ails You,” at https://www.tfhawaii.org/wordpress/blog/2012/10/finding-the-blame-for-what-ails-you/ (Oct, 28, 2012).
As predicted, programs that have been fed by earmarks from the tobacco tax, like the Cancer Research Center, have become a victim of the success of tobacco cessation programs and publicity. Revenues produced by the tobacco tax have been in steady decline over the past few years despite tax rate increases and hoisting the smoking age to 21 in the 2015 session certainly didn’t reverse the trend.
Source: Department of Taxation Annual Report (2022-2023), page 24.
Fiscal reliance on funds from a sin tax is inadvisable, perhaps outright dangerous. If the goal is to affect social behavior, use of the tax law is not the most effective way to do so.