Parity Pricing
Campaign for Tobacco-Free Kids, July 19, 2006
“Higher Cigarette Taxes”
“Increasing cigarette taxes is a WIN, WIN, WIN solution for states - a health win that reduces smoking and saves lives; a fiscal win that raises revenue and reduces health care costs; and a political win that is popular with the public. It's no wonder that 42 states and the District of Columbia have increased cigarette taxes since January 1, 2002, more than doubling the average state cigarette tax from 43.4 cents to 93.7 cents a pack. The average state cigarette tax will rise even more to 96.1 cents per pack in January 2007 when recently approved tax increases in Hawaii and Texas take effect.”
Considering the long term nicotine policy, the above statement is misleading. Perhaps there will always be those who the campaign regards as nicotine “addicts.” But what nicotine products will they use?
Washington’s I-773, which added 60 cents per pack in cigarette taxes, passed November 2001. During the 2005 legislative session Washington legislators passed an additional 60 cents per pack cigarette taxes. Total cigarette tax increases from 2000 to 2006 were $1.20 per pack, or $12.00 per carton.
In 2000 I began a research project. I bought a carton of Marlboro cigarettes and a box of Nicorette gum at the same store on the same day. Purchase receipts and copies of the box or carton with lot numbers were preserved. What I learned from this project was at once stunning and troubling. I compared the prices for Marlboro and Nicorette purchases in June 2000 and January 2006. The receipts reflected the tax increase in the cost of Marlboro. But the receipts also revealed that for the period that spanned a $12.00 increase for cigarettes, the cost of Nicorette increased by $12.06 per box, on a per unit basis. The phenomenon where the cost of product A increases in correspondence with price increases for product B is referred to as Parity Pricing. Since GlaxoSmithKline does not pay state excise tax on Nicorette, the increases in the cost of cigarettes due to the Campaign for Tobacco Free Kids tobacco tax advocacy became bottom line profits for the company. In effect, every box of Nicotine Replacement Therapy sold becomes a state subsidy for the product’s manufacturers and distributors.
The story concerning Washington’s I-773 and California’s Proposition 86 therefore converge around a deeply troubling set of facts concerning two corporations and one private foundation.
1. GlaxoSmithKline distributes Nicorette gum, NicoDerm CQ patches, and Commit lozenges.
2. Johnson & Johnson subsidiary ALZA Corp. subsidiary manufacturers NicoDerm CQ for GlaxoSmithKline. Through its June 26, 2006 purchase of Pfizer Consumer Health Care for $16.6 billion Johnson & Johnson will also own Nicorette, if the transaction is approved by the Federal Trade Commission under 1976 Hart-Scott-Rodino Antitrust Improvements Act requirements.
3. Robert Wood Johnson Foundation, which owns a reported $3.9 billion stake in Johnson & Johnson common stock has invested at least $446 million in grants to tobacco control advocates since 1992 (including $84 million in grants to the Campaign for Tobacco-Free Kids). Such advocacy not only inflates the cost of cigarettes for consumers but through Parity Pricing it also artificially inflates the cost of Nicotine Replacement Therapy smoking cessation products as well.
Like California’s Proposition 86, I-773 was actively supported by the Campaign for Tobacco Free Kids. As noted above the campaign has an $84 million vested interest in Proposition 86 passing. The University of California at San Francisco has also received tens of millions in tobacco control grants from the Robert Wood Johnson Foundation under the foundation’s SmokeLess States program. Tobacco control advocates who aggressively support Proposition 86 are directly tied through $3.9 billion of common stock and $446 million in special-interest grants to the corporations who will benefit the most through Nicotine Replacement Therapy price increases.
Considering the above, my recommendation to those who would still vote “Yes” on Proposition 86 is simple. Go ahead, voters, put up your own money to fund tobacco control’s bet on its own in-house tax roulette wheel.
What slot do you think
the tax revenue ball is going to fall into? You’re gambling
$2.1 billion per year in new state costs that the house will not
win on its own bet.
Mr. Kjono has researched and written about tobacco control for the past twelve years. He is a former columnist and board member for www.forces.org. Mr. Kjono’s commentary about youth smoking, “Let’s Really Save the Kids” was republished in the Luncent Press/Greenhaven Books 2000 anthology “Teen Smoking” under the title “A Better Way to Talk To Teens About Smoking.” His works on this subject have also been published in numerous trade journals, including the Los Angeles Daily Journal, plus Chief Engineer and Heating/Piping/Airconditioning magazines. He has also appeared on BBC London, Fox News, and CNN concerning tobacco control subjects.
Mr. Kjono can be reached at normkalr@earthlink.net.
