Has it cut down on smoking?
Definitely, according to the state.
Dan Bucks, director of the Montana Department of Revenue - which can track cigarette sales by the number of tax stamps it sells each month - has what he calls a “rough guess.”
He believes about 250,000 fewer packs a month are purchased by Montanans since voters raised the tax by $1 a pack starting Jan. 1, 2005.
Tax stamp sales actually indicate a decline twice that number, but there are two things the Department of Revenue can't count:
The number of cheaper cigarettes smuggled into Montana from nearby states, especially North Dakota, and the amount of cigarettes purchased on the Internet, which is also illegal.
It's one of the chief arguments of the tobacco industry: That continuous tax increases on tobacco in the name of reducing smoking eventually pushes otherwise law-abiding citizens to seek cheaper, albeit illegal, outlets - a Prohibition era-like response.
Also muddying the picture: Unlike the previous cigarette tax increase, which jumped from 18 cents a pack to 70 cents in 2003, this time the legislation didn't include an anti-stockpiling clause.
“All cigarette wholesalers were able to stock up on cigarette tax stamps at 70 cents, and apply those stamps after the tax rate went up,” Bucks said. “The short-term effect was it allowed the cigarette industry to up the sales price by a dollar” when the law went into effect, and pocket the profit.
So in November and December of 2004, Montana sold approximately 20 million cigarette tax stamps at 70 cents apiece - almost double what the state had sold in the previous two months.
When the price of a stamp jumped to $1.70 in January 2005, sales dipped to 1,262,500.
The number has leveled off to about 4 million a month since then.
Prior to the $1 increase, tax stamp sales varied greatly from month to month for no apparent reason, Bucks said. In March 2004, 2.9 million were sold; the following month, more than
5 million were issued.
To get a better idea of how the tax increase has affected smoking, Bucks said, the department used a “trend line.” It shows that, while the actual numbers fluctuate above and below the trend line, cigarette sales were already gradually declining before the $1 increase went into effect, dropping from 5.6 million packs in January 2002 to 4.8 million in October 2004.
Had the tax not been raised and the decline had continued, Bucks said, the trend line indicates sales would now be at about 4.5 million stamps per month.
Actual sales with the tax increase in place are a hair above 4 million a month. The 500,000 fewer packs a month, Bucks estimated, can probably be attributed to both a reduction in smoking and an increase in illegal cigarette purchases.
Initiative 149, which raised the tax, was passed by Montana voters by a 2-to-1 margin in 2004.
Nationally, state cigarette taxes range from $2.46 a pack in Rhode Island to 3 cents a pack in Kentucky.
The federal excise tax is
39 cents a pack.
One of the biggest arguments made by backers of Montana's Initiative 149 was that it would deter teens from starting smoking in the first place.
There's no way to track that, short of a survey that specifically asks if higher prices have kept them from buying cigarettes, said Linda Lee.
Lee, section supervisor of the Montana Tobacco Use Prevention Program, said the good news is that prevention-needs assessments indicate teen smoking was already on the decline before the tax increase, from 27 percent in 2000 to 19 percent in 2004.
“What we know works is a comprehensive program,” Lee said.
The tobacco tax is just one part of it. It also includes the Clean Indoor Air Act, education, counter-marketing and youth empowerment, she said.
“Price dramatically affects usage,” she said, “but price alone won't over time. People adjust to the price. A dollar more may deter people now, but two years from now it may not have as much of an impact.”
Another prevention-needs assessment, which surveys half of all eighth-, 10th- and 12th-graders in public schools in the state, is due this year and will give a better idea of the effect the tax increase has had on teen smoking.
Meantime, the state, which usually collected between $3 million and $4 million a month from cigarette tax stamp sales prior to the latest tax increase, now takes in approximately $7 million a month even though sales are down.
Bucks said state and local authorities are concerned with smuggling that brings cigarettes into the state from smoke shops owned by Indian tribes in North Dakota.
Bucks described North Dakota's tobacco laws as “looser” than most states.
The state is one of only three (North and South Carolina are the others) that don't require a tax stamp on cigarettes sold there. The cigarette tax is paid to the state on a monthly report by licensed cigarette wholesalers.
North Dakota's cigarette tax is 44 cents a pack, and tribal retailers do not have to pay it or charge for it. The law says non-Indians who purchase cigarettes on reservations are required to inform the state of their purchase and pay the tax, but it's unlikely many people fill out the paperwork and write a 44-cent check because they bought a pack of Camels on a reservation.
Smugglers don't either, and can bring cigarettes into Montana that cost them $1.70 a pack less than Montana businesses must charge.
With savings of $17 a carton, or $170 for 10 cartons, or $1,700 for 100 cartons, it doesn't take long to see why authorities believe smuggling is on the rise.
On the Internet, Montana smokers can order cartons of name-brand cigarettes from online retailers for about $18 less than they would pay in local stores that must tack on the tax. Unless they also pay the state the $1.70-a-pack tax, it's illegal.
There are estimates that place Internet tobacco sales at $5 billion a year nationally, costing states $1.9 billion in tax revenue.
But Bucks says the bottom line is that fewer and fewer Montanans were smoking before the tax increase, and raising prices by $1 has sped up the decline.
Reporter Vince Devlin can be reached at 523-5260 or at vdevlin@missoulian.com.
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