DENVER — Along with voting on reducing the state income tax rate and the way property tax rates are assessed, on Nov. 3, Colorado voters will be asked about whether they want to raise the nicotine tax.
Proposition EE would gradually — but significantly — raise tobacco taxes in the state and apply the tax to vaping products.
What does Prop. EE do?
Proposition EE would raise the price of a pack of cigarettes from its current tax of 84 cents per pack to $2.64 per pack by the year 2027.
It would also increase the tax on tobacco products from their current level of 40% to a new rate of 62% by 2027.
Vaping products would also need to start paying taxes. Currently they are not facing a tobacco tax. Prop. EE would raise the tax to 62% by 2027.
The initiative would also set a price floor for tobacco products, meaning all brands would be subject to a minimum price for their products. The minimum price for moist snuff products would be $1.48 per container if passed and would increase to $2.26 by 2027.
Similarly, the minimum price for a pack of cigarettes would be $7 in 2021 and would increase to $7.50 beginning in 2024.
State lawmakers passed a bill in the final days of the 2020 legislative session to put the question on the ballot. The initiative also subjects online sales from out-of-state retailers to these taxes among other things.
Prop. EE is expected to generate $175.6 million in revenue during the 2021-22 budget year and $275.9 million when the tax is fully phased in in 2027, according to Legislative Council Staff.
The money generated from the proposal would be given to schools, preschool programs, housing development, eviction legal assistance, health care, tobacco education programs and could also be used for general state spending.
The case for Prop. EE
Supporters of Prop. EE say this idea is a win-win for the state: Along with raising money for education and other important programs, they believe it could encourage more people to give up smoking.
“Proposition EE is a pretty straightforward proposition. What it will do is raise taxes on, as well as close the loophole on, vapor products,” said Michele Ames, a spokesperson for the Yes on EE campaign.
Over a 10-year period, proponents of the idea say they are expecting the tax to raise about $2 billion.
Colorado hasn’t raised its tobacco tax since 2004. Currently, Colorado has the 39th-lowest tobacco tax in the country. Over the decades, there have been multiple attempts to raise the tax in the state.
But each time, the efforts have been met with major resistance from tobacco companies, who spent millions on campaigns to defeat the idea.
Most recently, a ballot initiative to raise the tax failed in 2016 after big tobacco spent more than $16 million on campaigns against the idea.
This time around, proponents of the tax are hoping for a different outcome and are touting the potential benefits of the idea.
For education, they say the measure could help schools stave off some of the deep cuts the state made due to the COVID-19 pandemic and provide more access to early childhood education.
“Funding for preschool in Colorado, we’re one of the lowest in the country. Right now, less than half of our 4-year-olds are even enrolled in early childhood education programs. Families are not be able to afford a quality program,” said Pamela Harris, the president and CEO of Mile High Early Learning.
She believes the additional funding provided by Prop. EE would help reduce opportunity gaps in the state and help children in their development.
“Every 4-year-old would be ready for kindergarten. They would have that year to get their academic skills, their social emotional and problem-solving skills,” Harris said. “Having this kind of ongoing funding stream will again mediate the expense and increase access.”
Ames says the measure is also structured in a way to help rural schools, which were hit particularly hard in the recession.
Dr. Robin Deterding, a pediatric lung specialist and the chief of the breathing institute for Children’s Hospital Colorado, is more excited about what this tax could potentially do to teen vaping rates in the state.
“This is an epidemic of kids, and the importance of this is going to touch generations and have lifelong implications for these kids,” Dr. Deterding said.
Roughly 29% of high school kids are vaping in Colorado, according to Dr. Deterding. She says 53% of them have tried quitting, and while some have been successful, others have continued to vape due to addiction and social pressures.
“We’ve seen cases of life-threatening lung issues that still exist today from vaping,” she said. “This has caught us by surprise too. We’ve had to rethink how we take histories and what we ask kids.”
With the tax being added to vaping products, proponents of Prop. EE believe it could force some teens to quit because it would be too expensive of a habit for them.
“We know kids are tremendously price-sensitive and right now, vaping is not taxed at all,” Dr. Deterding said.
She’s also looking forward to the additional funding that would come from the tax to study how best to help kids quit vaping and deal with the social implications of doing so.
“We need to study that and then we need to set up programs that can actually impact kids,” she said.
The case against Prop. EE
For opponents of Prop. EE, this is a big tax coming at a bad time in the state, when businesses and consumers are pressed for money in the midst of a recession.
“Proposition EE is a $284 million tax increase at a time when Coloradans can least afford it,” said Michelle Lyng from the No on EE campaign.
Lyng is critical about where and how the money will realistically be spent, claiming more of it will be heading to legislative pet projects than anything.
She also doesn’t believe the tobacco and nicotine tax increase is the way the state will be able to fix education funding.
“Over and over again, we hear from Coloradans that they don’t think we have a revenue problem, we have a spending problem,” Lyng said. “If you want to fix the education funding formula let’s do it, but this isn’t the way to fix funding solvency.”
Beyond that, Lyng says if the proponents of the idea are committed to lowering smoking rates, more of the money generated from the initiative should go to cessation programs.
One of the biggest areas of contention for opponents is over the price floor.
Altria Group Inc., which is the parent company of Marlboro cigarettes and other brands, was involved in the discussions at the state legislature for Prop. EE.
Opponents of the initiative accuse the company of negotiating a sweetheart deal for big tobacco that will cut down on competition from discount brands.
“Big Tobacco is forcing discount cigarette manufacturers to sell at the same price,” Lyng said. “It was written with the help of Big Tobacco and that should really concern Coloradans.”
Supporters of Prop. EE disagree and say a price floor will help ensure that there is a reduction in the number of people who smoke.
Others argue that this initiative will hurt small businesses, like vape shops, and could even cause some to close down completely.
The Rocky Mountain Smoke Free Alliance represents hundreds of small vape shops across the state. President Amanda Wheeler says vaping products are already subject to a sales tax and that a tobacco tax this high would hurt the local economy.
“For local businesses to absorb or go from a 0% tax beyond sales tax to what is eventually going to end up as a 62% tax, that’s a huge step up for a particularly small business to absorb like that,” Wheeler said. “That tax rate is larger than the profit margin of the small businesses.”
She believes this could cause as many as half of Colorado’s small smoke shops to have to close their door permanently.
While proponents say the measure will encourage some to quit smoking, Wheeler argues many adults use vaping as an economical way to try to kick the habit and this proposal could backfire.
“We just don’t think it’s a very good idea to raise taxes on people who are trying to buy a product to help them quit smoking,” Wheeler said.
Finally, she’s not convinced that the move will price teens out of the market or force them to stop smoking since some underage smokers are buying the product illegally anyway.
“They’re not going into a responsible retailer and purchasing these and paying a tax on the legitimate market,” she said.
Roughly 14.5% of Coloradans use tobacco products, but opponents of the idea argue that this tax will affect much more than the users.
Does raising taxes really cut down on smoking?
Over the decades, there have been several attempts to raise the tobacco tax, most of which were met with strong opposition from the tobacco industry. Most recently, an attempt to raise the tax failed in 2016.
However, the last time the tobacco tax was raised, in 2004, Dr. Arnold Levinson, a professor at the Colorado School of Public Health and the University of Colorado Cancer Center, says the state did see a drop in the number of smokers.
“In general, tobacco taxes are the most effective way we have of a persuading people to quit who want to quit but need another nudge,” Dr. Levinson said. “We noticed that for every 10% increase in the price of tobacco, about 2% of smokers will quit and more of those smokers will be the low income than the high income.”
After the 2004 tax passed, Colorado witnessed a 5% reduction in cigarette consumption below the previous 15-year average, according to Dr. Levinson.
He predicts that Prop. EE will motivate roughly 30,000 smokers to kick the habit. In particular, Dr. Levinson believes so-called sin taxes are more effective on teens since they are more price sensitive.
Disproportionate effects of sin taxes
Tobacco taxes are a point of discussion and even disagreement among economists. Some argue that the tax is regressive, meaning that is affects low-income people more than the wealthy since they are spending a greater portion of their income on the product.
“Cigarette smoking is heavily concentrated among poorer people,” said Dr. Dahlia Remler, a professor at the Marxe School of Public and International Affairs at City University of New York.
Roughly 32% of adults in households below the poverty line smoke across the U.S., compared to just 7% of those whose income is above $100,000.
“Therefore, the burden of cigarette taxes falls largely on poor households,” Dr. Remler said.
Others say it can be perceived as more progressive since lower-income smokers might cut back on the habit or kick it altogether while wealthier individuals with more money to spend will continue their tobacco use at the same levels, spending more.
“I have been critical of that way of assessing the progressivity or regressivity of a tax increase. I’m critical of it because, first of all, it just looks at the change from the increase, it doesn’t consider what was the burden starting out,” Dr. Remler said.
While she says there are health and economic benefits to tobacco taxes, Dr. Remler believes the topic is more complicated than that.
First, there are the smokers who are addicted to the product and who cannot get themselves to quit.
Dr. Levinson says studies have shown that some groups have a harder time kicking the habit than others.
“Lower-income smokers have a much harder time quitting. We assume and believe it’s because they have much more stressful lives, and stress is a driver of smoking and quitting is a driver of stress,” he said.
To the extent that they don’t quit, Dr. Remler says these sin taxes add a lot of financial hardships to low-income families.
Beyond that, these taxes don’t respect people’s choices and freedom to choose whether they want to take on the habit, she says.
In general, there are four main ways to dissuade tobacco use: taxation, education, regulation and cultural norms. If there are high taxes and tight regulations on where people can smoke, people are less likely to take on the habit.
Dr. Remler believes it’s important to look at the whole picture of what something like the proposed tax increases would do, how progressive or regressive Colorado’s tax code is already and what type of a burden this would put on low-income families.
“You don’t just want to think about cigarette and other tobacco taxes in isolation, you want to think about them in the context of all of the taxes and what’s happening in the market naturally,” she said. “You also want to think about this in terms of the burden — the economic burden — more generally in the society.”
The bottom line
On Nov. 3, voters are going to be casting their ballots on a whole range of issues — some initiatives promise to lower taxes, others are aimed at raising taxes.
With the country still dealing with the economic toll of the COVID-19 pandemic, it will be up to each voter to decide.
Editor's Note: Denver7 360 stories explore multiple sides of the topics that matter most to Coloradans, bringing in different perspectives so you can make up your own mind about the issues. To comment on this or other 360 stories, email us at 360@TheDenverChannel.com. See more 360 stories here.
