taxation and preemption Final.7.22.2011.ppt · often determined by the courts. Public Health Division Office of Disease Prevention and Epidemiology. ... Microsoft PowerPoint - taxation

Preemption and Tobacco Taxation: What they are and why you should care.

Kirsten Aird & Daniel MorrisPolicy Lead and Evaluation Leady

HPCDP Grantee and Contractor Meeting 2011

Public Health DivisionOffice of Disease Prevention and Epidemiology

Today we are going to talk about …Today we are going to talk about …

Pricing strategies as a tobacco control toolPricing strategies as a tobacco control tool• Participants will be able to articulate the role of price increases and

tobacco taxes in the larger tobacco control movement

H t b i t d i OHow tobacco is taxed in Oregon• Participants will be able to describe how the different types of

tobacco are taxed in Oregon

Preemption and why it matters• Participants will be able to define preemption and articulate why it is

important for the tobacco control and healthy communitiesimportant for the tobacco control and healthy communities movement.

Local action and interestsPublic Health DivisionOffice of Disease Prevention and Epidemiology

Prices are importantPrices are important

–Raising the price of tobacco is the–Raising the price of tobacco is the most effective way to decrease

ticonsumption

–For every 10% price increase, consumption declines by 4%consumption declines by 4%

Cigarette marketing expenditures, 1963 - 2006

$16,000,000,000

$18,000,000,000

MediaDi t t

$12,000,000,000

$14,000,000,000Direct to consumerOther / Not specifiedPromotional allowancesPricing

$8,000,000,000

$10,000,000,000

g

$4 000 000 000

$6,000,000,000

$0

$2,000,000,000

$4,000,000,000

$0

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

Tobacco taxes in OregonTobacco taxes in Oregon

• How taxes are collected• How taxes are collected• Tax rates on different productsp• Where the money goes• Implications of tax disparities

Tobacco Pay federal taxesmanufacturers

Pay federal taxes

S ll d t tSell products to distributors

Licensed distributors Pay state taxes

Sell products to retailersretailers

Retail storesSell tobacco products to consumersconsumers

Tax stamp machineTax stamp machine

Oregon taxes are based on:Oregon taxes are based on:

• The number of cigarettes sold• The number of cigarettes sold• The wholesale price of cigars (with a

maximum tax per cigar)• The wholesale price of loose smokingThe wholesale price of loose smoking

tobaccoTh i ht f k l t b• The weight of smokeless tobacco (with a minimum tax per container)

How do mills work?How do mills work?

• A mill is the price in $ for 1,000 cigarettesA mill is the price in $ for 1,000 cigarettes

1 000 cigarettes / 20 per pack = 50 packs• 1,000 cigarettes / 20 per pack = 50 packs

• 59 mills = $59 per 1,000 cigarettes

• $59 / 50 packs = $1.18 per pack

Cigarettes and cigarsCigarettes and cigars

Federal tax rate Oregon tax rateFederal tax rate Oregon tax rate

Cigarettes $1.007 / pack of 20 $1.18 / pack of 20g p p

Small $1 007 / pack of 20 65% of wholesale Cigars $1.007 / pack of 20 price

52 75% of sales 65% of wholesaleLarge

Cigars

52.75% of sales price,

$0.4026 max per

65% of wholesale price,

$0.50 max perCigars $0.4026 max per cigar

$0.50 max per cigar

Loose smoking tobaccoLoose smoking tobacco

Federal tax rate Oregon tax rate

PipePipe Tobacco $0.177 / oz.

65% of wholesale priceRoll-your-

own $1.549 /oz.Tobacco

Smokeless tobaccoSmokeless tobacco

Federal tax rate Oregon tax rateChewing Tobacco $0.031 / oz. $1.78 / oz.,$1.78 / oz.,

minimum $2.18 per containerSnuff $0 094 / ozSnuff $0.094 / oz.

$300,000,000

Tobacco tax collections in Oregon

$250,000,000

OTP Cigarettes

$200,000,000

$100 000 000

$150,000,000

$50 000 000

$100,000,000

$0

$50,000,000

$01970 1975 1980 1985 1990 1995 2000 2005 2010

Money from cigarette sales in Oregon, 2010$876 million spent on 171.8 million packs$ p p

State tax23%

F d l t

Industry share57%

Federal tax20%

AdjustmentsAdjustments

• Distributors get $0.004 per stamp, and keep 1.5% of the OTP taxes they collect

• Department of Revenue administrative costsp

• Tribal compacts

Cigarette tax distributions

Cities

Counties1.9% Transportatio

nTURA1.9% 1.9%

General fund18.6%

2.9%

Oregon Health Plan

18.6%

Health Plan72.7%

$410 million$410 million in 2009-20112011

OTP tax distributions

OregonOregon Health Plan

41.54%

General fund

$89 million in 2009-

TURA4.62%

fund53.84% 2011

Combined cigarettes and OTP($ )($ in millions)

$335$400.0

$250.0

$300.0

$350.0 $499 million in 2009-2011

$124$150.0

$200.0

$ 50 0 2009 2011

$16 $8 $8 $8$-

$50.0

$100.0

An exampleAn example

Federal tax Federal taxFederal tax prior to April 2009

Federal tax after April 2009

Pipe tobacco $1.104 / lb. $2.83 / lb.

Roll your own $1 104 / lb $24 78 / lbRoll-your-owntobacco

$1.104 / lb. $24.78 / lb.

Diff $0 / lb $21 9 / lbDifference $0 / lb. $21.95 / lb.

3 0

Taxed Pipe and Roll Your Own Tobacco for Domestic Consumption, U.S. 4/08 - 4/11

2.5

3.0

RYO

Both taxed at $1.104/lb. Pipe tobacco taxed at $2.83/lb.

1 5

2.0

ions

)

RYO

1.0

1.5

Lbs.

(Mill

i

0 0

0.5

L

PIPE TOBACCORYO taxed at $24.78/lb.

0.0

Apr

il, 2

008

July,

200

8

ctob

er, 2

008

anua

ry, 2

009

Apr

il, 2

009

July,

200

9

ctob

er, 2

009

anua

ry, 2

010

Apr

il, 2

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July,

201

0

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er, 2

010

anua

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011

Apr

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Ja Oc

Ja Oc

Ja

Federal tax prior to April

Federal tax after April 2009prior to April

2009after April 2009

Pipe tobacco $1.104 / lb. $2.83 / lb.

$ / $ /Roll-your-owntobacco

$1.104 / lb. $24.78 / lb.

Difference $0 / lb. $21.95 / lb.

Difference in OR (65% tax

$0 / lb. $14.27 / lb.

rate)

Tobacco Tax QuestionsTobacco Tax Questions

Daniel MorrisHPCDP Evaluation Lead971-673-0870Daniel S Morris@state or [email protected]


Preemption: What is it?Preemption: What is it?

• Preemption is the invalidation of onePreemption is the invalidation of one jurisdiction’s law by the law of a higher jurisdiction. – Federal law can preempt state law, and city and

county lawSt t l t it t l– State law can preempt city or county law


Preemption: Floor vs. CeilingPreemption: Floor vs. Ceiling

• Floor sets the minimum standard and• Floor sets the minimum standard and establishes an equal playing field.

• Ceiling sets a maximum level of regulation that states (or local g (governments) may not surpass. – Misleading language because ceiling preemption g g g g p p

doesn’t allow for less stringent standards or laws


Preemption: Express vs. ImpliedPreemption: Express vs. Implied

• Expressed preemption explicitly states theExpressed preemption explicitly states the degree to which they preempt other laws. – Saving clause (e g waivers) for governments thatSaving clause (e.g., waivers) for governments that

pass stronger laws.

• Implied preemption refers to situationsImplied preemption refers to situations where federal or state law invalidates state law without explicitly saying so, and is a t out e p c t y say g so, a d soften determined by the courts.


Laboratories of DemocracyLaboratories of Democracy

• “Denial of the right to experiment may be fraught with serious consequences to the nation. It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic

i t ith t i k t th t f th texperiments without risk to the rest of the country.

– Louis Brandeis, Supreme Court Justice

Public Health Division

Office of Disease Prevention and Epidemiology

Preemption: Players and their argumentsPreemption: Players and their arguments

• Industry: argue for ceiling because it providesIndustry: argue for ceiling because it provides uniformity and predictability which will reduce costs and prevent inadvertent violations.

• State and local regulators and local public health professionals argue for local control and not to shut down the labs of democracy.


Preemption: Tricks of the tradePreemption: Tricks of the trade

• Local legislation can be used to stimulate theLocal legislation can be used to stimulate the passage of laws at a higher level.

• Legislation won’t always use the term g ypreemption, but it doesn’t mean it isn’t in there. Read, read and read again. – State uniformity, prohibit more restrict or stringent

standards.


Preemption: Tricks of the tradePreemption: Tricks of the trade

• Federal government can limit state and localFederal government can limit state and local legislation by different means.– Congress can tell states that it will provide g p

certain types of funding only if states meet a particular criteria.

• It is possible, but very difficult, to modify preemptive effect of an existing statue. – Preemption is never to be taken lightly. Be prepared

and proactive.


Take Away MessagesTake Away Messages

• The price of tobacco can either make it easy or difficult p yto purchase tobacco.

– Tobacco taxes are one strategy. Have an even greater impact when revenue is dedicated to tobacco prevention and education programs that keep kids from starting to smoke, protect people from secondhand smoke and help people quit.

• Pricing matters for other public health issues as well, such as reducing consumption of sugary drinks.g p g y

– Sugar-sweetened beverage taxes with revenue allocated to obesity prevention programs that increase access to healthful foods and beverages, decrease

– Proportional pricing strategies

• Ceiling preemption keeps local governments from acting as the laboratories of democracy.


Kirsten Aird, HPCDP Policy [email protected]

Documents

taxation and preemption Final.7.22.2011.ppt · often determined by the courts. Public Health Division Office of Disease Prevention and Epidemiology. ... Microsoft PowerPoint - taxation