Philadelphia City Council Plays into Tobacco Industry’s Hands

Other Tobacco Products should be taxed at a percent of wholesale, not by weight, says American Lung Association

(May 17, 2010)

On May 14, Philadelphia City Council gave Big Tobacco a win and sold themselves short of potential revenue.  They gave Committee-level approval to a budget that included a tax on chewing and pipe tobacco at 36 cents per ounce and individual cigars at 3.6 per ounce.  That is exactly what the industry wanted them to do.

The American Lung Association in Pennsylvania strongly recommends smokeless tobacco products be taxed at a percent of the wholesale or manufacturer’s price that is equivalent to the tax on cigarettes. To make the tax on other tobacco products parallel to Pennsylvania’s tax on cigarettes, it should be approximately 68%.    The percentage of wholesale method is preferable because the amount of the tax increases automatically as the price of the product increases. In contrast, a weight-based tax does not keep pace with inflation and loses its effect over time, therefore leaving the City’s coffers stagnant at $4 million.   In recent years, the smokeless manufacturers have encouraged states to adopt the weight-based approach. This method provides a specific advantage to its smokeless brands, which are the most expensive, most heavily marketed and most popular among youth by leading to the erosion of smokeless tax rates over time.

A major problem of a weight-based system is that it eventually leads to a declining tax. A percentage of price tax is automatically adjusted to inflation or any other increases in the wholesale price while a weight based one is not. As a consequence, over time the tax as a percentage of total cost will decline, thus making smokeless tobacco cheaper.

Not only is the way in which the tax imposed wrong, but the fact that Council Members failed to protect our kids from the harms of new dissolvable tobacco products such as Orbs and Sticks and also Snus, is insufficient.

“Smokeless tobacco products appeal to youth,” says acting CEO of the Lung Association of Mid Atlantic Deb Brown. “They are highly addictive, and cause cancer and other serious health problems. They are not a safe alternative to smoking cigarettes, nothing is.”

 Despite its dangers, smokeless tobacco is taxed at a lower rate than cigarettes in many states. In the Commonwealth, these products are not taxed at all.  The lower cost makes smokeless tobacco products more affordable and more appealing to youth.   The failure of the City Council to tax smokeless products and cigarettes at a rate equivalent to cigarettes encourages current smokers to switch to smokeless tobacco instead of quitting.

The American Lung Association strongly urges the Philadelphia City Council to do the right thing---to tax all smokeless tobacco products at the same rate as other tobacco products based on the wholesale price of the product.  By using this taxation method, the Council can help ensure that the tax on smokeless tobacco products remain an effective public health tool over time.   

Let’s implement a win- win- win strategy for the City---a financial win, a youth win and a win for all Philadelphians.