Big Tobacco Pours Millions Into California Cigarette Tax War

(Bloomberg) -- Reynolds American Inc., Altria Group Inc. and other tobacco companies are steering millions of dollars to defeating a $2 cigarette-tax increase in California, a high-stakes effort and the third such fight in a decade in the most populous U.S. state.

The tobacco industry’s outlay of $55.9 million so far means that it has outspent supporters 3-to-1 in donations to defeat the measure, which starting in April would boost the levy to $2.87 a pack. The initiative would generate from $1 billion to $1.4 billion in revenue in fiscal 2018 for cancer treatment and smoking prevention.

“When one side is spending much more than the other, it’s hard for voters to get a clear picture,” said Daniel G. Newman, president of MapLight, a Berkeley, California-based nonpartisan research organization that tracks money in politics. “Imagine two messages side by side -- one blaring from a gigantic movie screen and on the other side from a small cellphone. For voters, that amplification is going to make a difference.”

California, the first U.S. state to eliminate smoking in bars and restaurants and legalize medical marijuana, is an important battleground for the tobacco industry because policies approved there tend to be adopted by other municipalities. Blocking the tax in the state of 39 million people could deter anti-tobacco advocates in more conservative states from pursuing similar changes. That’s led cigarette markers including Richmond, Virginia-based Altria and Winston-Salem, North Carolina-based Reynolds to steer more cash toward fighting tax proposals in California than in any other state.

As the harmful health effects of smoking have come to light, the industry has for years employed an army of lobbyists and spent hundreds of millions of dollars on its battle with state and federal regulators and public-health advocates over curbing the practice and marketing the product, especially to kids. The firms reached a $200 billion settlement with 46 states in 1998 over the costs to treat ailing cigarette smokers.

New Battleground

As U.S. smoking rates decline, the companies have turned to the nascent industry of e-cigarettes and vaping, a new battleground of taxes and regulation. Under a new law, California treats those products as cigarettes. Kansas, Louisiana and North Carolina, along with cities including Washington and Chicago, have approved levies on them. The industry is pursuing legislation in Congress to limit a new Food and Drug Administration rule to regulate e-cigarettes.

In California, tobacco firms have given triple the $17.6 million from proponents, according to the secretary of state.

Large tobacco companies gave $162 million to fend off three California tax-increase proposals in the past decade, three times the $45.7 million from supporters, according to MapLight data.

The higher levy is a “special-interest tax grab,” said Beth Miller, a spokeswoman for the No on 56 campaign, funded by the tobacco companies.

“Any company that is being targeted for a tax will put money behind it to defeat it,” she said. “There are a lot of voters in California. Any campaign would welcome a campaign chest with a lot of dollars to be able to reach voters.”

Tom Steyer, a San Francisco-based billionaire environmentalist who gave $1 million in support, said the companies “spend millions to deceive the public and peddle their deadly product, with tragic results.”

A tax increase “will save lives and reduce health-care costs, and we believe Californians will see through tobacco industry lies,” he said in a statement.

Crowded Ballot

The cigarette-tax proposal is among 17 measures on the statewide ballot, including legalizing recreational marijuana use and eliminating the death penalty.

Ballot-measure opponents typically have an advantage in swaying voters, said Jack Pitney, a government professor at Claremont McKenna College, near Los Angeles.

“It’s easier to defeat something than pass it,” he said. “If you’re running the no campaign, all you have to do is create some reasonable doubt.”

Adding $2 to California’s 87 cent tax, one of the lowest in the nation, would push it up to ninth-highest in the U.S., behind New York’s $4.35 and Connecticut’s $3.90, according to data from the Campaign for Tobacco-Free Kids.

“A large tax increase is the single-most effective way to reduce smoking,” said John Schachter, a spokesman for the Washington group.

Some Flaw

Governor Jerry Brown, a Democrat, this year signed legislation making California the second U.S. state after Hawaii to raise the smoking age to 21. However, he vetoed a bill that would have allowed cities and counties to levy a local tax on tobacco.

Tobacco tax initiatives are on ballots in three other states, including an increase to $2.59 in Colorado and $2.20 in North Dakota. In Missouri, which has the lowest tax in the U.S., voters will consider rival measures to raise the levy to 40 or 77 cents.

A 2006 ballot initiative to raise the tax in California by $2.60 a pack failed 48.3 percent to 51.7 percent, after the industry spent $60.6 million to defeat it. A 2012 measure to raise the levy by $1 for cancer research faced a similar fate after the tobacco industry spent $46.6 million against it.

While polling showed 2-to-1 support for the 2012 initiative in the months before the election, the initiative was narrowly defeated after “a massive industry-supported advertising campaign,” a 2015 report from the California Department of Public Health said.

“To effectively kill a measure like this, often the opponents tackle not the main purpose of the measure itself, but pick at some flaw in the measure -- whether real or made up -- and focus on that,” MapLight’s Newman said.

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net. To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net, Michael B. Marois, Justin Blum