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Frankel bill would end tobacco subsidy by closing tax loophole
Cigarettes already taxed in Pa.; Cigars, pipe tobacco and smokeless tobacco aren’t
HARRISBURG, June 8 – State Rep. Dan Frankel, D-Allegheny, has introduced a bill that would improve Pennsylvanians’ health and could raise an estimated $77 million per year by eliminating a loophole he likens to a subsidy for tobacco.
Frankel, chairman of the Allegheny County Democratic Delegation, said H.B.1476 would end Pennsylvania’s tax exemption for cigars, pipe tobacco and smokeless tobacco, giving them a tax status similar to cigarettes.
“We are the only state that does not tax smokeless tobacco at all, and it’s time to end this loophole for all three of these categories of tobacco products. Pennsylvania essentially provides a huge, indefensible tobacco subsidy with a direct impact on the state budget of $77 million per year – about $6 for every resident, including everyone in the non-smoking majority. This makes no sense -- Pennsylvania is not a major tobacco-producing state like Kentucky or North Carolina. This loophole also creates a much larger indirect impact through unnecessary health-care costs borne by government, private employers, individuals and families,” Frankel said.
“In addition, the loophole also provides an incentive for people to switch from cigarettes to other tobacco products rather than quit. Like cigarettes, those tobacco products are also harmful to people’s health when used as intended, and they should not receive a price subsidy,” he said.
Frankel estimated his bill would cause a 39 percent drop in youth consumption of smokeless tobacco, based on an estimated drop of 6 to 7 percent in the number of youth users for each 10 percent increase in the product’s price. Frankel is proposing a 59.2 percent tax on the wholesale price of the non-cigarette tobacco products, equal to the state’s effective tax rate on cigarettes.
“Low-taxed or non-taxed smokeless tobacco can serve as an inexpensive gateway for young people into tobacco addiction and the associated cancers and other health dangers. Besides providing a step toward tax fairness, this bill would also hold down health-care costs in the long term,” Frankel said. “While the revenue generated from closing the loophole might drop over time if the number of people using cigars, pipe tobacco and smokeless tobacco drops, the health-care cost savings to government and the private sector would compensate for any such loss.”
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