This is a proposal to increase the taxes on tobacco products sold in the state to help fund children’s medical care, cancer prevention, anti-smoking programs and treatment and other health problems. This tax is expected to raise $175 million per year.
Proponents says it will help offset the cost of tobacco and smoking-related health issues that are now paid by non-smokers. Opponents decry the additional cost of the measure.
The proposed amendment to the Colorado Constitution: increases the tax on a pack of cigarettes from 20 cents to 84 cents, or 320 percent; doubles the tax on tobacco products other than cigarettes from 20 percent to 40 percent of the price; specifies that the new tax revenue is to be used for health care services and tobacco education and cessation programs; requires the legislature to maintain funding levels for existing health-related programs as of January 1, 2005, and to use the new revenue only to expand these programs; excludes the new tax revenue from state revenue and spending limits and local government revenue limits; and allows the legislature, by a two-thirds vote, to declare a state fiscal emergency and to use all of the new revenue only for health-related purposes for up to one budget year at a time. Background Cigarette taxes. Cigarette taxes are levied by the federal government and all 50 states. The federal tax rate on cigarettes is 39 cents per pack. For 2004, state tax rates range from a high of $2.80 per pack in Rhode Island to a low of 20 cents per pack in Colorado. The national average is 98 cents per pack. Tobacco products taxes. Taxes on non-cigarette tobacco products are levied on cigars, pipe tobacco, snuff, and chewing tobacco by the federal government and 47 states. The federal government levies its tax according to weight. States tax tobacco products based either on weight or a percentage of price. The tobacco products tax rate in Colorado is 20 percent of the price.
History of tobacco taxes in Colorado. In 1964, the state established a tax on cigarettes of 3 cents per pack. Prior to the state cigarette tax and through 1972, many local governments also taxed cigarettes. In 1973, the state raised the tax on cigarettes to 10 cents per pack and gave local governments the option of receiving a portion of state cigarette taxes or levying their own tax. No local government has levied a tax since that time. In 1986, Colorado’s cigarette tax was raised to its current rate of 20 cents per pack, and the tobacco products tax of 20 percent of the price was enacted. The proposal prohibits the legislature from reducing these taxes in the future. Current tobacco revenues. Colorado collected about $64.8 million from cigarette and tobacco products taxes last year. About one-quarter of this amount is sent to local governments statewide to use as they see fit. The remaining three-quarters is deposited into the state’s bank account, along with other state taxes, to pay for state programs. Because Colorado is a participant to the master settlement agreement between the tobacco companies and the various states, the state expects to receive approximately $118 million per year in additional money for the next 20 years. Current state health-related programs. In the current budget year, the state will spend about $3.0 billion to provide health care to low-income individuals, $4.3 million for programs on the dangers of tobacco use, and $141.2 million for a variety of prevention programs run by the state health department. Distribution of tobacco tax revenues under the proposal. Collection of the new tobacco taxes would begin on January 1, 2005. The proposal is expected to raise an additional $175 million annually. Of this amount, $169.8 million goes to targeted health care programs and $5.2 million can be spent by the state and local governments on health-related programs of their choosing. Table 1 shows how the new revenue is required to be spent. A N A L Y S IS
Table 1. Distribution of New Tax Revenue
Percentage Purpose Annual Estimated Distribution
46% to increase the number of low-income children and their parents, pregnant women, and other adults served by state health care programs $80.5 million
19% to pay for health care services at clinics or hospitals where at least half of the patients served are poor $33.3 million
16% for school, community, and statewide education programs designed to reduce the number of children and adults who smoke and reduce the community’s exposure to second-hand smoke $28.0 million
16% to prevent, detect, and treat cancer, heart, and lung diseases $28.0 million
3% to be used by the state and local governments for any health-related purpose $5.2 million This proposal and current law. In 2004, the state legislature passed a law in anticipation of this proposal. The law does not affect how the new money raised from this proposal is distributed. However, it declares that the legislature is responsible for setting the spending levels for health-related programs funded from existing sources of revenue.
he proposal directs where the new revenue will be spent but gives the legislature flexibility during a fiscal emergency to spend these dollars for other health-related purposes. At any time, the legislature may refer a measure to the people to change how this money is spent.
1) Tobacco use is the leading cause of preventable death in Colorado, killing 4,200 Coloradans each year. Annual health care costs in Colorado directly related to smoking are more than $1.0 billion. Under this proposal, funds will be provided to prevent, detect, and treat cancer and heart and lung disease, ailments that affect many Coloradans. The new taxes will also help low-income children and adults receive health care that they could not otherwise afford. The proposal will provide money to treat individuals who have tobacco-related illnesses and will lower future tobacco-related health care costs by reducing tobacco use throughout the state. 2) Colorado is currently 50 th among the states in the level of cigarette taxes. Raising tobacco taxes will deter many youth from becoming addicted to tobacco products. Almost all adult smokers started smoking when they were teenagers. In Colorado, one in every four high school students smokes and over a third use tobacco of some sort. Youth tobacco consumption in Colorado is higher than the national average. Studies have shown that as the price of tobacco products rises, an increasing number of youth will stop, or never start, using tobacco. Funding programs that educate children about the dangers of tobacco use will also discourage youth from using tobacco and will help smokers to quit. 3) This proposal will not decrease revenue to state and local governments. In every state that has raised cigarette taxes, revenue has increased despite reduced cigarette pack sales and use of the internet to purchase cigarettes. This proposal ensures that local governments will receive funds to make up for any revenue loss due to lower tobacco sales because it guarantees that local governments will receive a portion of the new tax moneys. A N A L Y S IS
Arguments Against 1) The proposal puts a tax increase in the state constitution and increases the size and cost of government. Colorado smokers and tobacco users will pay 320 percent more in state cigarette taxes and 100 percent more in state taxes on other tobacco products to fund state health care programs. Taxes for a one-pack-a-day smoker would increase by $234 each year. Existing constitutional spending requirements have limited the ability of the legislature to react to changes in the state budget and economic conditions. This proposal adds yet another inflexible spending mandate. Further, reductions in sales and consumption due to this proposal will reduce funding to local governments that depend upon current cigarette tax revenues to fund essential government functions like fire and police protection. 2) The tax increase may cause additional hardship to low-income families in Colorado. People living in poverty are 48 percent more likely to smoke than those not living in poverty. The tax takes a much larger bite out of the budgets of low-income individuals than wealthy individuals. There is no guarantee that smokers will benefit from the new health care programs. If this is the case, smokers would be paying much higher taxes, but few would receive additional health care services. 3) The proposal allocates $28 million in badly needed state revenue to tobacco education programs which may not be needed in future years if tobacco use continues to decline. Nationally, demand is decreasing 2 percent per year, but in Colorado demand is falling even more rapidly and will decrease further if consumers turn to other sources, such as the internet, for their purchases. The new tax money may be inadequate over time to maintain some of the proposal’s programs while others may have more money than they require. The legislature will not be able to fix these problems because it will have no control over the distribution of this money.
Estimate of Fiscal Impact The proposal will raise about $169.8 million in new revenue for health care programs and $5.2 million for the state and local governments in the 2005-06 budget year. Additionally, the state will incur a one-time cost of $3,500 for computer programming changes to track the new revenue. Current law reduces revenue for health-related purposes as of January 1, 2005, in order to preserve the power of the legislature to appropriate existing funds for state programs and functions. State Fiscal Year Spending and the Proposed Tobacco Taxes The state constitution requires that the following fiscal information be provided when a taxation question is on the ballot: 1. an estimate or actual total of state fiscal year spending for the current year and each of the past four years with an overall percentage change and dollar change for that period; and 2. for the first full fiscal year of the proposed tax increases, an estimate of the maximum dollar amount of each tax increase and of state fiscal year spending without the increase. Table 2 shows state fiscal year spending. Table 3 shows the revenue expected from the new tobacco taxes and state fiscal year spending with and without these taxes. A N A L Y S IS
State Fiscal Year Spending History 2000-01 Actual 2001-02 Actual 2002-03 Actual 2003-04 Estimate 2004-05 Estimate State Spending $7,949 million $7,760 million $7,713 million $8,191 million $8,220 million Four-Year Dollar Change in Spending: $271 million from 2000-01 to 2004-05. Four-Year Percent Change in Spending: 3.4% from 2000-01 to 2004-05.
State Fiscal Year Spending and the Proposed Tobacco Tax Increases 2005-06 Estimate State Spending without New Taxes $8,483 million New Cigarette Tax of $0.64 per Pack $162 million New Tobacco Products Tax of 20% $13 million Total New Tobacco Taxes* $175 million State Spending with New Taxes* $8,658 million * The new tobacco tax revenue is not subject to the state’s fiscal year spending limits.
Ballot Title: STATE TAXES SHALL BE INCREASED $175 MILLION ANNUALLY THROUGH ADDITIONAL TOBACCO TAXES IMPOSED FOR HEALTH RELATED PURPOSES, AND, IN CONNECTION THEREWITH, AMENDING THE COLORADO CONSTITUTION TO INCREASE STATEWIDE TAXES ON THE SALE OF CIGARETTES BY WHOLESALERS OF THREE AND TWO-TENTHS CENTS PER CIGARETTE AND ON THE SALE, USE, CONSUMPTION, HANDLING, OR DISTRIBUTION OF OTHER TOBACCO PRODUCTS BY DISTRIBUTORS AT THE RATE OF TWENTY PERCENT OF THE MANUFACTURER’S LIST PRICE; INCREASING SUCH TOBACCO TAXES EFFECTIVE JANUARY 1, 2005; REQUIRING ANNUAL APPROPRIATIONS OF SPECIFIED PERCENTAGES OF THE ADDITIONAL TOBACCO TAX REVENUES TO EXPAND ELIGIBILITY FOR AND INCREASE ENROLLMENT IN THE CHILDREN’S BASIC HEALTH PLAN, TO FUND COMPREHENSIVE PRIMARY MEDICAL CARE THROUGH CERTAIN COLORADO QUALIFIED PROVIDERS, TOBACCO EDUCATION PROGRAMS, AND PREVENTION, EARLY DETECTION, AND TREATMENT OF CANCER AND CARDIOVASCULAR AND PULMONARY DISEASES, TO COMPENSATE THE STATE GENERAL FUND, THE OLD AGE PENSION FUND, AND LOCAL GOVERNMENTS FOR TOBACCO TAX LOSSES RESULTING FROM REDUCED SALES OF CIGARETTES AND TOBACCO PRODUCTS; SPECIFYING THAT THE APPROPRIATIONS OF ADDITIONAL TOBACCO TAX REVENUES SHALL BE IN ADDITION TO AND NOT SUBSTITUTED FOR APPROPRIATIONS FOR SUCH PROGRAMS ON JANUARY 1, 2005; ALLOWING THE USE OF ADDITIONAL TOBACCO TAX REVENUES FOR ANY HEALTH RELATED PURPOSE AND TO SERVE POPULATIONS ENROLLED IN THE CHILDREN’S BASIC HEALTH PLAN AND THE COLORADO MEDICAL ASSISTANCE PROGRAM AS OF JANUARY 1, 2005, UPON A DECLARATION OF A STATE FISCAL EMERGENCY BY TWO-THIRDS OF THE MEMBERS OF EACH HOUSE OF THE GENERAL ASSEMBLY AND THE GOVERNOR; PROHIBITING THE REPEAL OR REDUCTION OF EXISTING TAXES IMPOSED ON CIGARETTES AND OTHER TOBACCO PRODUCTS; EXCLUDING ALL ADDITIONAL TOBACCO TAX REVENUES FROM FISCAL YEAR SPENDING FOR PURPOSES OF SECTION 20 OF ARTICLE X OF THE COLORADO CONSTITUTION; AND EXEMPTING APPROPRIATIONS OF ADDITIONAL TOBACCO TAX REVENUES FROM THE STATUTORY LIMITATION ON GENERAL FUND APPROPRIATIONS GROWTH OR ANY OTHER EXISTING SPENDING LIMITATION.
Text of Proposal: Be it Enacted by the People of the State of Colorado: Article X of the Constitution of the State of Colorado is hereby amended BY THE ADDITION OF A NEW SECTION to read: Section 21. Tobacco Taxes for Health Related Purposes. (1) THE PEOPLE OF THE STATE OF COLORADO HEREBY FIND THAT TOBACCO ADDICTION IS THE LEADING CAUSE OF PREVENTABLE DEATH IN COLORADO, THAT COLORADO SHOULD DETER CHILDREN AND YOUTH FROM STARTING SMOKING, THAT CIGARETTE AND TOBACCO TAXES ARE EFFECTIVE AT PREVENTING AND REDUCING TOBACCO USE AMONG CHILDREN AND YOUTH, AND THAT TOBACCO TAX REVENUES WILL BE USED TO EXPAND HEALTH CARE FOR CHILDREN AND LOW INCOME POPULATIONS, TOBACCO EDUCATION PROGRAMS AND THE PREVENTION AND TREATMENT OF CANCER AND HEART AND LUNG DISEASE. (2) THERE ARE HEREBY IMPOSED THE FOLLOWING ADDITIONAL CIGARETTE AND TOBACCO TAXES: (a) STATEWIDE CIGARETTE TAX, ON THE SALE OF CIGARETTES BY WHOLESALERS, AT THE RATE OF THREE AND TWO-TENTHS CENTS PER CIGARETTE (64 CENTS PER PACK OF TWENTY); AND (b) A STATEWIDE TOBACCO PRODUCTS TAX, ON THE SALE, USE, CONSUMPTION, HANDLING, OR DISTRIBUTION OF TOBACCO PRODUCTS BY DISTRIBUTORS, AT THE RATE OF TWENTY PERCENT OF THE MANUFACTURER’S LIST PRICE. (3) THE CIGARETTE AND TOBACCO TAXES IMPOSED BY THIS SECTION SHALL BE IN ADDITION TO ANY OTHER CIGARETTE AND TOBACCO TAXES EXISTING AS OF THE EFFECTIVE DATE OF THIS SECTION ON THE SALE OR USE OF CIGARETTES BY WHOLESALERS AND ON THE SALE, USE, CONSUMPTION, HANDLING, OR DISTRIBUTION OF TOBACCO PRODUCTS BY DISTRIBUTORS. SUCH EXISTING TAXES AND THEIR DISTRIBUTION SHALL NOT BE REPEALED OR REDUCED BY THE GENERAL ASSEMBLY. (4) ALL REVENUES RECEIVED BY OPERATION OF SUBSECTION (2) SHALL BE EXCLUDED FROM FISCAL YEAR SPENDING, AS THAT TERM IS DEFINED IN SECTION 20 OF ARTICLE X OF THIS CONSTITUTION, AND THE CORRESPONDING SPENDING LIMITS UPON STATE GOVERNMENT AND ALL LOCAL GOVERNMENTS RECEIVING SUCH REVENUES.
(5) THE REVENUES GENERATED BY OPERATION OF SUBSECTION (2) SHALL BE APPROPRIATED ANNUALLY BY THE GENERAL ASSEMBLY ONLY IN THE FOLLOWING PROPORTIONS AND FOR THE FOLLOWING HEALTH RELATED PURPOSES: (a) FORTY-SIX PERCENT (46%) OF SUCH REVENUES SHALL BE APPROPRIATED TO INCREASE THE NUMBER OF CHILDREN AND PREGNANT WOMEN ENROLLED IN THE CHILDREN’S BASIC HEALTH PLAN ABOVE THE AVERAGE ENROLLMENT FOR STATE FISCAL YEAR 2004, ADD THE PARENTS OF ENROLLED CHILDREN, AND EXPAND ELIGIBILITY OF LOW INCOME ADULTS AND CHILDREN WHO RECEIVE MEDICAL CARE THROUGH THE “CHILDREN’S BASIC HEALTH PLAN ACT”, ARTICLE 19 OF TITLE 26, COLORADO REVISED STATUTES, OR ANY SUCCESSOR ACT, OR THROUGH THE “COLORADO MEDICAL ASSISTANCE ACT”, ARTICLE 4 OF TITLE 26, COLORADO REVISED STATUTES, OR ANY SUCCESSOR ACT. (b) NINETEEN PERCENT (19%) OF SUCH REVENUES SHALL BE APPROPRIATED TO FUND COMPREHENSIVE PRIMARY CARE THROUGH ANY COLORADO QUALIFIED PROVIDER, AS DEFINED IN THE “COLORADO MEDICAL ASSISTANCE ACT,” ARTICLE 4 OF TITLE 26, COLORADO REVISED STATUTES, OR ANY SUCCESSOR ACT, THAT MEETS EITHER OF THE FOLLOWING CRITERIA: (I) IS A COMMUNITY HEALTH CENTER AS DEFINED IN SECTION 330 OF THE U.S. PUBLIC HEALTH SERVICES ACT, OR ANY SUCCESSOR ACT; OR (II) AT LEAST 50% OF THE PATIENTS SERVED BY THE QUALIFIED PROVIDER ARE UNINSURED OR MEDICALLY INDIGENT AS DEFINED IN THE “COLORADO MEDICAL ASSISTANCE ACT,” ARTICLE 4 OF TITLE 26, COLORADO REVISED STATUTES, OR ANY SUCCESSOR ACT, OR ARE ENROLLED IN THE CHILDREN’S BASIC HEALTH PLAN OR THE COLORADO MEDICAL ASSISTANCE PROGRAM, OR SUCCESSOR PROGRAMS. SUCH REVENUES SHALL BE APPROPRIATED TO THE COLORADO DEPARTMENT OF HEALTH CARE POLICY AND FINANCING, OR SUCCESSOR AGENCY, AND SHALL BE DISTRIBUTED ANNUALLY TO ALL ELIGIBLE QUALIFIED PROVIDERS THROUGHOUT THE STATE PROPORTIONATE TO THE NUMBER OF UNINSURED OR MEDICALLY INDIGENT PATIENTS SERVED. (c) SIXTEEN PERCENT (16%) OF SUCH REVENUES SHALL BE APPROPRIATED FOR SCHOOL AND COMMUNITY-BASED AND STATEWIDE TOBACCO EDUCATION PROGRAMS DESIGNED TO REDUCE INITIATION OF TOBACCO USE BY CHILDREN AND YOUTH, PROMOTE CESSATION OF TOBACCO USE AMONG YOUTH AND ADULTS, AND REDUCE EXPOSURE TO SECOND-HAND SMOKE. SUCH REVENUES SHALL BE APPROPRIATED THROUGH THE “TOBACCO EDUCATION, PREVENTION AND CESSATION ACT”, PART 8 OF ARTICLE 3.5 OF TITLE 25, COLORADO REVISED STATUTES, OR ANY SUCCESSOR ACT.
(d) SIXTEEN PERCENT (16%) OF SUCH REVENUES SHALL BE APPROPRIATED FOR THE PREVENTION, EARLY DETECTION, AND TREATMENT OF CANCER AND CARDIOVASCULAR AND PULMONARY DISEASES. SUCH REVENUES SHALL BE APPROPRIATED TO THE PREVENTION SERVICES DIVISION OF THE COLORADO DEPARTMENT OF PUBLIC HEALTH AND ENVIRONMENT, OR SUCCESSOR AGENCY, AND SHALL BE DISTRIBUTED STATEWIDE WITH OVERSIGHT AND ACCOUNTABILITY BY THE COLORADO STATE BOARD OF HEALTH CREATED BY ARTICLE 1 OF TITLE 25, COLORADO REVISED STATUTES. (e) THREE PERCENT (3%) OF SUCH REVENUES SHALL BE APPROPRIATED FOR HEALTH RELATED PURPOSES TO PROVIDE REVENUE FOR THE STATE’S GENERAL FUND, OLD AGE PENSION FUND, AND MUNICIPAL AND COUNTY GOVERNMENTS TO COMPENSATE PROPORTIONATELY FOR TAX REVENUE REDUCTIONS ATTRIBUTABLE TO LOWER CIGARETTE AND TOBACCO SALES RESULTING FROM THE IMPLEMENTATION OF THIS TAX. (6) REVENUES APPROPRIATED PURSUANT TO PARAGRAPHS (a), (b), AND (d) OF SUBSECTION (5) SHALL BE USED TO SUPPLEMENT REVENUES THAT ARE APPROPRIATED BY THE GENERAL ASSEMBLY FOR HEALTH RELATED PURPOSES ON THE EFFECTIVE DATE OF THIS SECTION, AND SHALL NOT BE USED TO SUPPLANT THOSE APPROPRIATED REVENUES. (7) NOTWITHSTANDING ANY OTHER PROVISION OF LAW, THE GENERAL ASSEMBLY MAY USE REVENUE GENERATED UNDER THIS SECTION FOR ANY HEALTH RELATED PURPOSE AND TO SERVE POPULATIONS ENROLLED IN THE CHILDREN’S BASIC HEALTH PLAN AND THE COLORADO MEDICAL ASSISTANCE PROGRAM AT THEIR RESPECTIVE LEVELS OF ENROLLMENT ON THE EFFECTIVE DATE OF THIS SECTION. SUCH USE OF REVENUE MUST BE PRECEDED BY A DECLARATION OF A STATE FISCAL EMERGENCY, WHICH SHALL BE ADOPTED ONLY BY A JOINT RESOLUTION, APPROVED BY A TWO-THIRDS MAJORITY VOTE OF THE MEMBERS OF BOTH HOUSES OF THE GENERAL ASSEMBLY AND THE GOVERNOR. SUCH DECLARATION SHALL APPLY ONLY TO A SINGLE FISCAL YEAR. (8) REVENUES APPROPRIATED PURSUANT TO SUBSECTIONS (5) AND (7) OF THIS SECTION SHALL NOT BE SUBJECT TO THE STATUTORY LIMITATION ON GENERAL FUND APPROPRIATIONS GROWTH OR ANY OTHER SPENDING LIMITATION EXISTING IN LAW. (9) THIS SECTION IS EFFECTIVE JANUARY 1, 2005.