Legislature(2003 - 2004)
03/25/2004 01:43 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 368-TOBACCO TAX; LICENSING; PENALTIES CHAIR CON BUNDE announced SB 368 to be up for consideration. MR. JOEL GILBERTSON, Commissioner, Department of Health and Social Services (DHSS), explained why it is important for the state to address the tobacco levy this year. It is the number one public health crisis threatening the state of Alaska according to a new report called Tobacco in the Great Land - A Portrait of Alaska's Leading Cause of Death, published Feb 2004. He summarized: Tobacco is the number one cause of death, disability and chronic illness in this state. We have already seen in Alaska, alone, the impact of increasing the tobacco tax on consumption of tobacco products. Since 1997, which is the year in which the most recent tax was increased, we've seen a 30 percent decline in the consumption of tobacco products in Alaska. Those are round numbers done for the section of Epidemiology. It's also true to say that there is an absolute link between the price of a tobacco product and its consumption both by youth and adults. Increasing the unit price of tobacco products is one of the most effective ways in deceasing the utilization of tobacco products by minors. Young individuals have limited resources; they are least prepared to afford higher tobacco prices and for that reason we see a very beneficial affect on the consumption of tobacco products by minors. As youth are especially sensitive to the proposed $1 per pack tax increase, we believe this will add to the 50 percent decline we have seen in the consumption of tobacco since 1995. In 1995, we conducted a statistically valid youth risk behavior survey and we have completed another statistically valid survey in 2003, just last year. The numbers between those two studies have shown a 50 percent decline in consumption. We believe that can be built upon and additional successes can be realized with the increase in the tobacco tax. A further drop in youth smoking of just 15 percent from the current levels would translate to 1,800 lives saved from premature death due to smoking. Adults will also see a great benefit from this tax increase, because it is also an effective way of discouraging continued use of tobacco products and to incentivize the use of tobacco cessation programs. It is estimated that the increased cost of purchasing cigarettes following this tax increase will lead to about 350,000 adult smokers to finally quit smoking. For every 3,500 smokers who quit, that means you'll have about 800 individuals who will not die because of a smoking caused death. We have some other vulnerable populations in the state as a result of tobacco consumption. Smoking among expectant mothers would also reduce significantly and we believe that this would result in an estimated 850 babies being spared from exposure to maternal smoking while in utero during the next five years. With the smoking prevalence of 44 percent, Alaska Natives have the most to benefit from this program. Alaska Natives disproportionately consume tobacco products. It's one of a number of unacceptable health disparities that we're working in the department to correct. We see it in suicide, we see it in alcohol consumption, but it's also in tobacco consumption. The Alaska Natives who smoke is nearly double the rate of non-Natives. Among the high school population, of those who participated in the youth risk behavior survey, smoking is almost four times that of the non- Native population. We believe that is another great reason to move ahead with the tobacco tax increase. This reduction in Alaska's health burden due to tobacco will translate into health care cost savings. Within five years, Alaska's health care savings from fewer smoking related pregnancies and births will amount to $1.6 million in savings and that came from the Campaign for Tobacco-Free Kids.... In 1998, the medical expenditure cost in this state, alone, was $133 million as a result of tobacco consumption. In terms of lost productivity just because of tobacco related deaths was $137 million. That does not include illness, sickness, breaks - that's just deaths from tobacco. This proposed increase will raise $45.5 million.... I would say that we did look at some of the econometric studies that were done. We looked at the 17 largest econometric studies and they analyzed the effects of price increases on tobacco use prevalence and consumption in the general population. In every single study, in each one of the 17 econometric studies, they did find a correlation between an increase in price and a decrease in consumption of tobacco products. That has ranged from 1.5 to 3.7 percent. It's more acute in juvenile populations. There are strong public health reasons. I started out by saying that tobacco is the number one public health problem for the State of Alaska. It is our leading cause of death; it is our leading cause of disability; it's our leading cause of chronic illness and I can go through a litany of health care complications that come from tobacco consumption. I think you're aware of them and, ironically enough, so are smokers. We did do an analysis of what smokers, themselves, think of the health consequences of smoking.... Alaska ATS in 2003, found that 5 of 6 Alaska adults who smoke wish they could quit. Of 85 percent that were surveyed, 85 percent said that they would like to quit and would like to have assistance. Three out of four adults who smoke believe that people should be protected from second hand smoke. We know there's a public health problem here and this is an appropriate step to bring our tobacco tax in alignment with other states, but also to insure that we're protecting young people from beginning to smoke. People don't start smoking when they are 30, 40 or 50. Some do, but very few. Most start when they are under the age of 18. The more we can do to make the cost prohibitive for the consumption of tobacco products, the less we will have of downstream consequences of tobacco. On behalf of the governor, I urge your consideration of this bill and moving it forward. CHAIR BUNDE observed that during the previous tobacco tax war, many people didn't believe that price would have any impact, but later acknowledged that the consumer was affected by price. He said a lot of people wanted to testify on this issue and limited the time to two minutes a person. MR. STEVE PORTER, Deputy Commissioner, Department of Revenue, said the governor totally supported this bill, which increases the excise tax from $1 to $2 per pack. The total revenues for a fiscal year is estimated to be $35 million. MS. JOHANNA BALES, Program Manager, Cigarette and Tobacco Products Excise Tax, Department of Revenue, pointed out that this bill has some clean up measures from old tax law in the first sections that weren't addressed last year when the cigarette excise tax stamp legislation passed. The issue of double taxation where the tax had to be paid again in state if the licensee was from out of state and had already paid the tax. A couple other items had to do with technical corrections to the same legislation. Current law has no provision that allows a distributor who makes sales of product out of state to get a credit for taxes that may have been paid in Alaska. Now there is a credit provision. Another issue was corrected by providing credit for tax stamps that get lost in transit. The new legislation increases the cigarette tax from $1 to $2 per pack. Tax on other tobacco products would increase from 75 percent to 100 percent of the wholesale price. There are also forfeiture provisions, which means if someone imports unstamped cigarettes into the state for sale, that the state would be able to seize assets that were used in the commission of that crime, which is a felony tax evasion. The final, major, provision would require a floor stock tax to be paid on all inventories that are currently in the state at the time of the effective date of the act. A floor stock tax is the difference between the old and new tax rates. Every person who stocks cigarettes for sale would be required to take an inventory and pay the tax to the Department of Revenue within 30 days. This is an important provision because in 1997 when the tobacco tax was originally increased without a floor stock tax, a significant amount of stock piling occurred. She estimated about 200 million sticks of cigarettes were stockpiled primarily by retailers who didn't pass the savings on to consumers. Approximately $7 million of revenue was lost and the department received numerous complaints about it. MS. CAROLE EDWARDS, Alaska Nurses Association, said she has been an oncology nurse for 20 years. The Alaska Nurses strongly support the tobacco tax. Tobacco use, as you know, is directly linked to cancer and it is the most preventable cause of death in our society. Second-hand smoke causes illness and death to innocent victims who have chosen not to smoke or in our children who cannot make that decision for themselves. Tobacco use is alarmingly high in our Alaska Native population, particularly in children and adolescents. Statistics do show that increased cost of tobacco decreases the use particularly in our youth. MS. EDWARDS related a short story about how she became a cigarette smoker at the age of 17. She tried to quit many times, but was unsuccessful, even after her second child was born seven weeks prematurely and almost died. "It is an extremely addictive disease and very difficult to quit once you have started." She finally quit when her husband left the army and she didn't have access to cheap cigarettes any more. This happened 31 years ago. MS. JENNIFER APP, Alaska Advocacy Director, American Heart Association, strongly supported SB 368. Cardiovascular disease takes a big toll in the State of Alaska. It is the number one cause of death in this state, if you combine heart attacks and strokes. The number one preventable cause of cardiovascular disease is cigarette smoke. She supported the testimony of Commissioner Gilbertson regarding the costs of smoking. If we actually wanted to recoup the amount of money that this state subsidizes every year in terms of taking care of people sickened by cigarettes or in terms of lost productivity, we would need to tax each pack of cigarettes at $6.38 per pack. So, when we talk about increasing this tax to $2 a pack, we're not even making up the difference. So, I really urge this committee to think hard about both the financial aspects and also the important health costs. MS. CHRISTIE GARBE, Director, American Lung Association, strongly supported SB 368. High school smoking rates have dramatically dropped since 1995 and it's a commitment from all these program elements working together. One of the big features in that was increasing the tax in '97. What we're talking about is children not picking up that first cigarette... and don't have to quit later.... I just heard yesterday in the Alaska Tobacco Control Alliance meeting [that] the number one cause of cancer with Alaska Natives is now lung cancer and this has come upon them as a new horizon and this is a very serious problem.... The reason we are here today supporting the tax has nothing to do with the revenue. It has only to do with lives saved and future health care costs reduced. MS. MARIAH WARREN, Alaskan resident, said she is a student at the University of Alaska Southeast and works at a local super market and it's very apparent to her that the cost of cigarettes has a very direct link to who smokes. She fully supported SB 368. MS. EMILY NENON, Alaska Advocacy Director, American Cancer Society, supported everyone's testimony and passage of SB 368. CHAIR BUNDE asked her what percentage of the general Alaska public supported the tobacco tax. MS. NENON replied that 67 percent of Alaska voters support increasing the tobacco tax. The support is the same whether it is at 50 cents or $1. There is consistent support from all regions of the state. MS. DORIS ROBBINS, Juneau resident, said she is on a crusade against tobacco. She agreed with everything that has been said here today. The tax would obviously lower the number of kids starting to smoke and encourage adults to stop. She has read biological data that says when children get addicted to something, it is much harder for them to stop. Something happens to their brains in their formative years. She also heard Dr. Urata say on KTOO radio that if tobacco was introduced as a new product today, the Federal Drug Administration (FDA) would never allow it to be put on the shelves. MS. ROBBINS thought that stopping kids from ever starting was important, but focusing on the cost was important as well. Data from Alaska Tobacco-Free Kids said that in 1998, $60 million was spent in Medicaid costs for tobacco related illnesses. TAPE 04-27, SIDE A MS. ROBBINS related how a friend of hers died last year after contracting pancreatic cancer from smoking. She lasted about four months and in that time she used all of her savings and had to go to the hospital because the pain was so severe she could not be at home. She spent the last months of her life in the hospital trying to relieve pain. Personally, she has permanently reduced lung function and asthma caused by second-hand smoke and has to take daily medications to be able to breath. That costs her $4,800 per year if she doesn't get sick. She pointed out that a few people in senior housing smoke and it affects all the other people who live there; she is personally trying to help one of them now. Apparently, smoking is allowed in all [senior] Alaska housing which is partially financed with state funding. In order to save the state money, we need to look at tobacco as a whole - what it is costing the state. I look at this tobacco tax as pre-insurance for tobacco users, because they're going to wind up at the end of their ropes on Medicaid.... This is a big bill for the State of Alaska. MS. MARGUERITE STETSON, State Coordinator for Advocacy, AARP Alaska, supported SB 368. ...a higher tobacco tax will help prevent our youth from beginning to smoke. It will also help some current smokers to stop. If raising the cost of a pack of cigarettes helps prevent any of Alaska's grandchildren from starting to smoke, we are strongly in favor of it. We are concerned with the data in the governor's transmittal letter indicating that Alaska Natives, and particularly Alaska Native high school students, smoke at a much higher rate than the non-Native population. We strongly recommend that some of the new revenue coming in to state government from the tax increase be used to target cessation efforts to Native smokers and, in particular, to our Native youth. This week we heard a report from the Medicare trustees indicated that health care costs were higher than expected. In AARP, we worry about Medicare's financial status. We also know that Medicare would be in better financial shape if so many current retirees had not been smokers. Increasing tobacco taxes in Alaska has immediate beneficial health consequences. It also will have beneficial long-term financial consequences for both Medicare and Medicaid. SB 368 is good economic policy and good health policy. It makes sense and it is fair.... Thank you. MS. JOELLE HALL, mother of two young children, said when they reach 12 and 13 years old, she really hopes that smoking is cost prohibitive for them. I hope you will consider this inflation proofing of Alaska's tobacco tax and that you will consider doing it again in a couple years, because I think we need to keep it expensive and keep it away from our kids. Thanks. MS. KATTARYNA STILES, Alaska Native Health Board, said: I do think this proposal is a good idea. It's a good idea because it will save lives. It's a good idea because it will raise money; and it's a good idea because it will reduce health care costs.... She supported previous testimony, especially comments on what it means particularly to the Alaska Native community. In western Alaska, among pregnant women, the tobacco use rate is as high as 67 percent. Sixty-seven percent of any demographic using tobacco is unacceptable, but 100 percent of those unborn children are ingesting tobacco products. CHAIR BUNDE asked if anyone else wanted to testify. There was no response and he closed public testimony. There were no amendments and he asked the will of the committee. SENATOR SEEKINS moved to pass SB 368 from committee with attached fiscal note and individual recommendations. CHAIR BUNDE asked for a roll call vote. Senators Hollis French, Ralph Seekins, Gary Stevens, Bettye Davis and Chair Con Bunde voted yea; and SB 368 moved from committee. There being no further business to come before the committee, he adjourned the meeting at 3:30 p.m.