This morning I received an email in my state email box.  Since it’s subject to GRAMA (Government Records Access and Management Act), I thought I’d post the response here.

Dear Mr. Constituent (fictitious):

Thank you for your e-mail.  The results of your on-going survey posted on the CH’s forum website reflect the general attitude of people (respondents) in District 57 (CH, PG, and s/e AF).  Most of the respondents I refer to are those I’ve personally (non-scientifically) polled during casual one-on-one conversations.  Although only 12 people have responded to your poll, the sampling is indicative of those that have a great disdain for smoke, and second-hand smoke, butt a greater disdain for government’s ability to tax minority populations just because it can.

One of the core problems with taxing “sins” in Utah is the fact that nearly 80% of the Utah State Legislature are members of the predominant religion.  And, as smoking is a “sin” among members of that predominant religion, smokers are automatically thrust into an “undesirable” category.  As we create tax policy addressing tobacco, it would appear to some that we are isolating or singling out those who don’t “believe as we do.”  (The same would be true of alcohol consumers in Utah, one of only three fully state run alcohol distribution systems in the nation.)  Many credible national and state tax associations preach the gospel of “lowering the rate and spreading the base.”  Target or minority population taxation is “unfair” and some believe “unconstitutional.” 

Another argument…”It’s OK to tax this minority population because of their excessive financial drag on state and national healthcare programs (i.e. Medicaid, Medicare, CHIP, etc.) ” is often posed by individuals and special interest groups who seek to mitigate associated costs with the overall delivery of socialized healthcare.  However, this is only a partially valid argument…at least as it bears on Utah.  The REAL problem lies not in covering the associated costs of social healthcare delivery directly proportional to the consumption of tobacco products, it’s that we “over charge” smokers to subsidize other unrelated state government programs and spending…programs and spending completely foreign to healthcare.  Some of these unrelated programs financed by cigarette tax and tobacco taxes are General Fund programs, which draw money from the “Big Pot.”   They are wholly untraceable.  It’s not unlike (double negative, I know) placing a single drop of white paint into a gallon of black paint and then trying to determine where in the bucket the white paint ended up.  The “Big Pot” concern has long been a…concern.  Transparency/accessability is part of this argument, but I won’t address it here.

The following figures are “loose” numbers (I’m trying to tighten them up for the inevitable forthcoming legislative discussion/debate) and there are statistics in my possession, as far back as 1923, when Utah first implemented the cigarette tax (tobacco tax didn’t arrive until 1964) that drive my argument.

Let’s use FY2008 budget numbers for an example.  For the 12 months ending on June 30, 2008, combined cigarette and tobacco products net revenue was $53,767,618.  This reflects a net loss from FY07 to FY08 of $57,551.  (Are cessation programs working?)  By statute, $8,478,705 was taken off the “top” of the overall cigarette/tobacco coffers (Cigarette Tax-Tobacco Prevention-Restricted account) to the benefit of three specific entities: The Huntsman Cancer Institute, The Utah State Department of Health, and University of Utah medical education.  [59-14-204(5)]  The monies earmarked for the Department of Health are for the support of “tobacco prevention, reduction, cessation, and control programs.”  After several inquiries as to where the other monies specifically go…no one seems to know.  An annual report to the Health and Human Services Interim Committee of the Legislature should be occurring; however, further inquiries to the Office of Legislative Research and General Council (OLRGC) have determined these annual reports have not been occurring on their statutory mandated schedule.

The new numbers we’re dealing with by adding the “net” revenue and the restricted account figures gives us cigarette and tobacco revenues totaling $62,246,323.  Approximately, $5.5 million of the restricted account monies was past on to the three statutory entities (see 59-14-204(5)(d)(i) through (iii) AND 59-14-204(5)(e) for formulae of distribution) during the FY08 according to figures I received from OLRGC.  The remainder, as far as I can determine, remains in the restricted account.  Preliminary numbers I received from the Office of the Legislative Fiscal Analyst (OLFA) show a balance in this restricted account.

Here’s the problem: $62.2 million of cigarette/tobacco revenue minus $5.5 million of program related monies equal $56.7 million lapsing into the “Big Pot.”  And THAT is a problem.  Just like the drop of paint in the bucket, the remaining tax revenues dissolve into the General Fund and are gone “forever” (untraceable).  Now, our state funds “other” healthcare programs with this money.  Some “experts” have testified before House Committees I’ve sat on, and shared their belief (using their figures) that the general fund monies used for healthcare are between $1 million and $20 million.  Looking at just the numbers associated with CHIP programs and insurance, I’d say we’re above $10 million.  But then my numbers are as subjective as the “experts.”  Because, the answer is NO ONE KNOWS where tthis money goes.

To find out where this money is going, the logical solution is to fund cigarette/tobacco and/or healthcare “programs” with the remaining $56.7 million and find out where the load on the remaining state budget occurs.  Holding the overall state budget at $11,260,788,306 and moving money from General Fund programs into cigarette/tobacco programs would isolate the “pork” in the state’s budget.  (I know addressing the issue this way is bad tax policy; nonetheless, a loading diagram/budget would identify where the budget’s critical needs are.)  The problem is no bureaucrat wants to admit that their program is the “pork” program.

Another thought.  If we removed the cigarette/tobacco tax all together, the result would not be the diminishment of any of the current social healthcare programs. The result would be in the further reductions to other General Fund programs…take my word for it.  This argument is supported by the fact that when Representative Dougall (Chair of the Health and Human Services Appropriations Sub-Committee) proposed large reductions to the current HHS budget, they were rejected.  Despite the fact that 13.3% budget cuts were taken from the state’s overall budget, HHS only saw a decrease of 8.2% (these are the state revenue components).

We’re not even addressing, in this email, other associated problems such as the recent federal Cigarette Tax increase of 62 cents per pack which decreased Utah’s potential Excise Tax revenues by $6.159 million because of reduced marginal cigarette sales (Tax Foundation’s statistics) OR the potential “Black Market”  created by disgruntled smokers who refuse to pay the increased price to have a butt…and knows somebody who knows somebody who knows “a guy.”

Because we overcharge them, smokers are financially atoning for the “sins” of other non-smokers.

If my arguments give way to increased revenue enhancements (tax increases) during a Special Session or General Session and an increase in cigarette tax is authorized by your state legislature….I’d probably be a little concerned if I was a Redhead driving a Prius.

Thanks for your interest in this important matter of tax policy.  Please feel free to contact me any time.

Rep. Craig Frank