Cigarette photo by Pawel Czerwinski on unsplash.com

Congress is proposing the Tobacco Tax Equity Act of 2021, which increases the tax on cigarettes and equalizes the tax on all other tobacco products. Central Valley convenience store owners believe the law, if passed, will only exacerbate illegal sales.

Cigarettes will face a 100% hike per pack of 20, as well as cigars. Chewing tobacco will face a 2,023% hike per one ounce. 

Jivtesh Gill is chairman for American Petroleum and Convenience Store Association and owner of several brands of Central Valley convenience stores. He is against taxation and said that any additional tax in retail is double-edged. 

It might encourage people not to buy tobacco products, but from a business standpoint, it impacts our bottom line, he said.

“Businesses who are dependent on this category for years and years, all of the sudden it’s shrinking,” Gill said.

He doesn’t think it will fix the tobacco problem, either. 

“It definitely encourages a gray market,” he said. “People find a way to buy things cheaper.”

He doesn’t support smoking, and he believes there are other ways of going about reducing tobacco use other than making it more expensive. He supports more education on the dangers of smoking. He says that is a better alternative to just taxing a product. Taxation is an easier route, but it’s not efficient, he said.

“We really need to solve the core problem, which is why people are smoking,” he said. 

Several studies, including one performed by the National Center for Biotechnology Information, concluded that raising taxes on tobacco products is effective in reducing the number of smokers in high risk populations. It did not study the prevalence of selling products illegally. 

Raising prices would potentially force more products into illegal importation from countries like China or Mexico, said George Beal, owner of Johnny Quik Food Stores in the Central Valley. 

“It really goes back to are they solving a problem by enforcing a tax,” Gill said. 

It’s going to put tobacco products out of reach of some people, and the taxes from those who still purchase the products won’t go back to the retailer in the end.

“People that are hooked…they just pay a little more,” said Beal. “The consumption of tobacco products has not gone down since they added a $2 tax.”

California Proposition 56, which went into effect in April 2017, added a $2 tax and brought the total tobacco tax up to $2.87 per pack of cigarettes. The tax revenue was allocated to physician training, prevention and treatment of dental diseases, Medi-Cal, tobacco-use prevention, cancer research, heart and lung diseases and school programs focused on tobacco use prevention and reduction.

“They just want more tax money,” Beal said.

David Kline, spokesperson for the California Taxpayers Association, said that it’s not just about the tax, but also about the ripple effects that follow a policy like this. 

He said taxation would do harm to California’s tax revenue at the state and local levels at a time when many people are struggling financially. 

“It’s sort of a double-whammy – the money goes away and then we lose our own revenue that we could’ve been using for California priorities,” Kline said.

California could potentially lose money and jobs due to tax increases, he added.

“Every job is important when you’re trying to recover from a pandemic especially,” said Kline. 

Pushing sales elsewhere could take money away from the retailers, which in turn would create job losses. 

“When you increase the tax this significantly on tobacco products and vaping and other kinds of tobacco products, you basically drive more of the purchases into the black market. So instead of someone buying a pack of cigarettes from the local small business, they will maybe buy some smuggled cigarettes from a disreputable seller somewhere in the neighborhood. And that’s taking away the revenue from the small business,” Kline said.

Many opponents also feel the proposed law is a contradiction to President Biden’s initial statement that people making less than $400,000 would not face additional taxes.

“It’s surprising that this tax would be included since it is well-known that tobacco taxes are very regressive — they hit the lower income people more than higher income people,” Kline said.