May 8, 2014 | Vol. 40, No. 19

Tobacco Tax: The economics of taxing addiction

Sales Tax Ordinance Committee Member Sue Flint is scheduled to speak before the assembly May 19 where she will again recommend a tax on tobacco.

At the tail end of last winter, the committee first recommended the tax to the borough assembly. The recommendation came, in part, after Petersburg Medical Center CEO Elizabeth Woodyard requested that such a tax be implemented and that the revenues go towards PMC capital projects.

PMC Lab and Imaging Manager Liz Bacom also spoke on behalf of a tobacco tax and reported 153 smoking related diagnoses at PMC during 2012, and that the equipment used to make such diagnoses is expensive to maintain

Petersburg Indian Association Tobacco Prevention Specialist Mark Banda also supported a tobacco tax citing decreased youth smoking as result of similar taxes.

But how much money would the borough bring in from a tobacco tax and would it really curb smoking?

To find out, it’s helpful to look at other communities who have implemented tobacco taxes.

The Borough of Sitka, for instance, instituted a tobacco tax in 2006. The Sitka tax charges $1 per pack of cigarettes and 45 percent of the wholesale price for other tobacco products. Because the tax is charged to the wholesaler, the tax is built into the price and passed onto the consumer rather than added the cost at the time of the sale.

For the last five years, Sitka brought in an average of $458,000 a year. With the exception of one dip, those dollars have increased each year over the five year span.

Borough of Sitka Finance Director Jay Sweeney said he anticipates 2014 revenues to be closer to $500,000.

“We thought, over time, we would see a reduction (of revenues),” Sweeney said. “We haven’t seen a big decline in the amount of the funds.”

It begs the question does a tobacco tax actually reduce tobacco use?

According to countyhealthrankings.org, adult smoking has increased in Sitka from 19 to 21 percent between 2010 and 2014.

Patrick Williams is the Sitka Community Hospital’s Tobacco Prevention Specialist and he said Sitka’s tobacco tax doesn’t seem to have an effect on adult smokers.

“But I definitely see a big decrease in teenage level smoking,” Williams said. “In prevention that’s the biggest thing you want. You want to stop the younger generation. I think that what it’s doing.”

Youth are likely more price sensitive to the cost of tobacco compared to adults who have also been smoking longer and who have had more time to develop a habit.

PIA’s Tobacco Prevention Specialist, Banda, cited statistics from Petersburg School Distirct’s Youth Risk Behaivor Survey, which found that more than a quarter of local students had tried smoking.

If curbing overall smoking is a goal of a tobacco tax, most communities across Alaska that have tobacco taxes likely aren’t charging enough.

According to data from the Campaign for Tobacco Free Kids (CTFK), based on a $9 pack of cigarettes, an increase of the unit price by 20 percent—a tax of nearly $2 per pack—would curb adult smoking by 3.6 percent and youth smoking by 8.6 percent. In contrast, most communities in Alaska tax at a $1 per pack rate.

Many municipalities with tobacco taxes, such as Sitka and Juneau, use the revenues to support their hospitals or pay for smoking cessation programs.

If Woodyard gets her way, potential tobacco tax revenues in Petersburg could go towards PMC, which has requested borough funding assistance for capital projects.

If Petersburg instituted a $1 per pack tax, it could receive between $111,000 to $144,000 a year, according to CTFK data which uses the percentage of local tobacco users and compares it to the per capita tax of other small communities,

That is a very rough estimate considering there is no mechanism to gauge the amount of tobacco sold in Petersburg, just figures for the number of tobacco users.

Countyhealthrankings.org estimates the percentage of Petersburg and Wrangell smokers (it lumps the two communities together) at around 19 percent. When compared to Sitka’s per capita tax, a similar number to CTFK’s estimate was calculated.

A tobacco excise tax would need to be approved by voters if the borough wanted to get it on this October’s ballot.

“The tax would have to be approved by ordinance by the assembly,” said Petersburg Borough Finance Director Jody Tow. “The first reading would have to be before July 7 in order to get it on the ballot.”

Vice Mayor Cindi Lagoudakis said no such agenda item has been set but she would be open to discussing such a tax.

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