Cigarette Sales Off 29% in State Since 50-Cent Tax Hike

SACRAMENTO — When a new tax raised the price of cigarettes in California by 50 cents per pack this year, Conrad Nelson didn’t kick the habit. He did, however, stop buying his smokes in the Golden State.

Now, Nelson’s Winstons arrive by mail from a New Mexico outfit that bills his credit card.

“It’s easy,” said Nelson, 68, who is president of a water district in Yucaipa and smokes two packs a day. “And let me tell you, it’s a lot cheaper.”

Figures released by the state Monday show that cigarette sales in California have declined sharply since January, when Proposition 10 increased the tobacco tax by a half-dollar per pack.

Tax receipts show that the number of cigarette packs sold in California during the first six months of 1999 was 29% lower than the number sold during the same period last year.

Supporters of Proposition 10, which added the tax to fund early childhood programs, hailed the news, calling it evidence that price is an effective deterrent to smoking. On top of the new tax, they noted, smokers were hit by a 45-cent-per-pack price increase levied by tobacco companies to help the industry pay for a $206-billion settlement of lawsuits filed by 46 states.

California officials agreed that price hikes are causing consumption to decline among the state’s 4 million smokers, but they suspect that a market shift--to both legal and illegal sources--is at work as well.

Some Californians shop the Internet, which offers more than 40 Web sites selling cigarettes. Others, like Nelson, sustain their habit by shopping in states with a lower tobacco tax. In Nevada, for instance, the tax per pack is 35 cents. Arizona’s tax is 58 cents and Oregon’s is 68 cents.

Mexico is another big draw. There, a carton of name-brand American cigarettes sells for $11 to $15, compared to $30 to $35 in California.

“The black market is running amok, and we created it,” said Assemblyman Brett Granlund (R-Yucaipa), who buys his cigarettes from a smoke shop in Louisville, Ky. “California is awash in out-of-state cigarettes, and we’re not getting the tax money for them.”

Martin Feldman, a tobacco analyst with Salomon Smith Barney in New York, agreed: “There’s no doubt that imports, both legal and illegal, have taken up much of the demand. The market is smart. It will seek the lowest price.”

Feldman also speculated that California’s decline in cigarette consumption may reflect stockpiling by consumers and retailers in late 1998. Figures from the state Board of Equalization show that cigarette sales peaked in December, topping 199 million.

While California leads the nation with its 29% decrease in sales, price hikes have contributed to a drop in sales nationwide, analysts said.

“When you take those two factors together--taxes and the [industry] settlement--that’s a significant increase,” says Stanton Glantz, a professor at UC San Francisco Medical School and leader in anti-smoking campaigns. “It’s very good news. It says that all the economists who said people are price sensitive were right.”

Proposition 10, approved by 50.5% of the voters last fall, increased the tobacco tax from 37 cents to 87 cents per pack to raise money for early childhood development programs. The increase made the price per pack as high as $4 in some areas of the state.

Rob Reiner, who spearheaded the initiative campaign, called the drop in cigarette sales proof that high prices will prompt some smokers to quit.

“It’s thrilling,” he said. “It’s only been six months and we’re off to an amazing start.”

Glantz said he had predicted that the price increase caused by Proposition 10 would cause a 10% to 15% decline in consumption. He suspects the rest of the decrease is the result of hard-hitting anti-tobacco ads the Davis administration has begun airing this year.

Over the last two decades, the percentage of adult Californians who smoke has declined from more than 30% to about 18%, health studies show. In addition, those who smoke are smoking fewer cigarettes a day, down from 17 on average in 1989 to fewer than 14 in 1996.

California’s tobacco tax is the third highest in the nation, behind Alaska and Hawaii. Proposition 10 followed a 25-cent-per-pack tax adopted by California voters in 1988.

Glantz and other anti-smoking activists downplayed the argument that smokers are merely shopping elsewhere.

“To get from California to anywhere else you’re going across a mountain or a desert or through a big bunch of trees,” Glantz said. “I just think that in terms of quantity, it’s a pretty trivial amount.”