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Missouri has the lowest cigarette tax in the country. Why does a tobacco company want to raise it?

Stanton Glantz, director of the Center for Tobacco Control Research and Education at the University of California–San Francisco, is a veteran anti-smoking researcher and activist.

In 1994, the Brown & Williamson tobacco company sued the California Board of Regents in an effort to keep Glantz from making public the sensitive company documents he had received from a whistleblower. The university prevailed, and Glantz and his colleagues wrote an influential Journal of the American Medical Association paper based on the documents, which showed that the tobacco industry knew nicotine was addictive and that smoking caused cancer.

Yet even he marvels at the ballot initiative that Missouri voters will consider this fall to raise the tax on major cigarette brands by 60 cents a pack.

The most unusual aspect of the proposal is that it’s being financed largely by a cigarette manufacturer. RAI Services Company has given more than $2.6 million to Raise Your Hand for Kids, the campaign committee leading the push for the new tax. “RAI” stands for Reynolds American Inc., the parent of the R.J. Reynolds Tobacco Co., maker of Newport, Camel and Pall Mall.

“I’ve never seen an instance where a cigarette company went to the ballot with a tax before,” Glantz tells The Pitch.

The tactic caught people off-guard. In February, The St. Louis Post-Dispatch’s editorial board described the tobacco tax initiative as a “sound proposal” and made no mention of R.J. Reynolds’ involvement. Two months later, the paper rescinded its endorsement. But in a sign of how strange this story is, the paper made its about-face for reasons other than the cigarette company’s influence.
Tobacco exemplifies the occasionally baroque nature of Missouri politics. The state’s current tax on cigarettes — 17 cents a pack — is the lowest in the country, even though Missouri is not a major tobacco-growing state.

Jefferson City is famous for its hospitality to the tobacco industry. When lawmakers passed a 4-cents-a-pack increase in 1993, the last time they touched the tax, they restricted local governments from enacting their own taxes on cigarettes. In 1995, the state Senate designated a lobbyist for the Tobacco Institute an official smoking area wherever he roamed within the Capitol. That it may have been a joke seems beside the point.

From 2000 to 2009, 46 states and the District of Columbia increased cigarette taxes, raising the average state cigarette tax by 92 cents a pack, according to the Campaign for Tobacco-Free Kids, a nonprofit group. Many of these tax hikes were passed via ballot initiative. But voters in Missouri rejected new taxes on cigarettes in 2002, 2006 and 2012.

The tobacco industry fought the 2006 ballot initiative, which would have raised the tax by 80 cents a pack. The major manufacturers stayed out of the 2012 campaign because the proposed initiative addressed a facet of the settlement agreement that companies had reached with 46 states in 1998.

Some background: In return for billions of dollars, the states agreed to drop the lawsuits they had filed against the major manufacturers to recover the costs of providing medical care to people suffering from smoking-related illnesses. Missouri receives about $130 million each year under the agreement.

States required cigarette manufacturers that were not part of the settlement to make escrow payments as security for possible future lawsuits against them. These “non-participating manufacturers,” as they’re known, sell mostly discount brands (Echo, Decade, etc.). In addition to setting aside funds for future judgments, the escrow laws protect the big manufacturers from being steeply undercut on price by companies not subject to the settlement agreement.

A loophole in the law allows small manufacturers to claim refunds from the escrow accounts by concentrating their sales in a few states. Most states fixed the loophole.

Missouri — alone among the 46 states party to the settlement agreement — never has.

When he was attorney general, Gov. Jay Nixon pleaded with the Legislature to close Missouri’s loophole. His successor, Chris Koster, has continued to make the appeal. In a letter to lawmakers earlier this year, Koster said the state refunds $80 million each year to the small manufacturers.

The 2012 ballot initiative proposed raising the tax on cigarettes by 73 cents a pack. It also contained language addressing the small-manufacturer loophole. Alas, the measure failed by fewer than 41,000 votes.

R.J. Reynolds was one of the big four (now big two) tobacco companies that settled with the states in 1998. So it’s not a coincidence that the constitutional amendment it’s now bankrolling speaks to that agreement. Among other things, the amendment promoted by Raise Your Hand for Kids imposes an “equity assessment fee” of 67 cents on each pack of cigarettes sold by non-participating manufacturers.
Raise Your Hand for Kids incorporated in late 2014. U.S. Engineering Co., one of the oldest and largest private companies in Kansas City, was an early contributor to the campaign. Tyler Nottberg, the chairman of U.S. Engineering, is a founder of the Alliance for Childhood Education, a group that promotes workforce readiness in Kansas and Missouri.

Most of the money raised by the tax — estimated at about $300 million annually — will go into a fund for early childhood health and education programs. Stressing the Raise Your Hand for Kids campaign’s honest origins, Nottberg says he and others were working to muster support for the initiative for more than a year before the “partnership” with Reynolds American. “The overall concept of a tobacco tax was self-funded by private citizens,” he tells The Pitch.

Not everyone was on board. The executive director of the Missouri Petroleum Marketers and Convenience Store Association, which opposed past efforts to raise the cigarette tax, called the proposed amendment “outrageous and unfair.”

Recognizing that increasing the cigarette tax for the first time in more than 20 years may not look outrageous to many Missourians, the convenience-store owners and discount-cigarette makers later came forward with a competing proposal to raise the tax by 23 cents. That money would be spent on state transportation projects.

The 23-cent tax hike was cast as a cynical effort to, as the Post-Dispatch put it in an editorial, “head off a more serious proposal at the pass.” A fuller picture of the more serious proposal emerged later, when Raise Your Hand for Kids began to smell of cigarette smoke. RAI Services Co. gave $1 million to the campaign in late 2015 and has continued to give in the months running up to the election.

The dynamic changed when R.J. Reynolds’ involvement came to light. In March, health groups in Missouri that had supported previous proposals to raise the cigarette tax spoke out against both the R.J. Reynolds–backed amendment and the proposition that convenience stores were working to put on the ballot. The American Cancer Society Cancer Action Network, the Health Care Foundation of Greater Kansas City and other groups issued a statement calling the proposals “alarming and deceitful.”

In the same statement, the health groups suggested that both tax proposals had been designed to minimize their impact on tobacco sales. Each proposal raises the tax gradually, lessening the financial shock known to be effective in convincing smokers to try to quit. The American Cancer Society Action Network recommends increasing cigarette taxes by a minimum of $1 per pack to make smokers feel the jolt.

The Raise Your Hand for Kids initiative would raise the tax on discount brands by $1.27. Defending the 60-cent tax on major brands, campaign officials say past ballot initiatives suggest that Missouri voters are cautious about raising the cigarette tax. “The past three attempts that have been made to raise it have in aggregate raised the tobacco tax exactly zero dollars and zero cents,” Nottberg says.
The size and speed of the tax increases are not the only objections to the Raise Your Hand for Kids initiative. The amendment contains several sentences restricting the money from being spent on abortion services, though public funding for abortions is already prohibited in Missouri. The amendment also states that the money can’t be used for embryonic stem-cell research.

The insertion of the stem-cell language dismayed groups promoting scientific research in Missouri. “We were shocked,” says Dena Ladd, the executive director of the Missouri Cures Education Foundation, which worked to pass the 2006 amendment to the state constitution that protects any stem-cell research and therapy in Missouri that is legal under federal law.

Missouri Cures and other scientific groups worry that the proposed amendment could chip away at the protections they’ve secured. Ladd tells The Pitch that her group met with the organizers of Raise Your Hand for Kids and asked them to remove the language about stem cells. They refused.

In March, Missouri Cures announced its opposition the Raise Your Hand for Kids initiative, calling it “North Carolina–based Big Tobacco’s proposed amendment to change Missouri’s Constitution.” Missouri Cures faulted the campaign for allowing “anti-research activists,” which is to say anti-abortion rights groups, to insert the language about stem cells.

The language about abortion and stem cells is what led the Post-Dispatch editorial board to rescind its support of the amendment. Raise Your Hand Kids campaign officials say the language was added to make it clear that that the tax revenue would be spent on children. (The amendment states that between 5 and 10 percent of the money will be spent on smoking cessation and prevention programs.) “It’s not a research initiative,” says James Harris, a campaign spokesman. “It is to help kids birth to [age] 5.”

It was not the first time abortion had become intertwined with tobacco. Missouri Right to Life provided late opposition to the cigarette-tax ballot initiatives in 2002 and 2006, claiming that the money could be used to pay abortion providers. The group has declared its neutrality on the Raise Your Hand for Kids initiative.

Both the 60-cent and the 23-cent tax initiatives will appear on November’s ballot, putting in competition groups whose interests are normally aligned. Glantz, the University of California–San Francisco researcher, says he cannot recall an instance when a tobacco company has squared off against convenience-store and gas-station owners. “The fact that you now have open warfare between these two groups is interesting,” he says.

Both ballot initiatives suggest a realization that Missouri’s cigarette tax was not going to stay at 17 cents much longer. The question that cigarette makers and convenience stores seemed to have asked themselves is: How do we manage the increase? Glantz notes that R.J. Reynolds’ e-cigarette unit supported a tax on the product now in place in North Carolina, the company’s home state. That tax, it should be noted, is small.

“Tobacco companies always play the long game,” Glantz says. “They’re very unusual for American corporations. The standard complaint about big American corporations is they’re always obsessed with this quarter’s bottom line and they don’t really think about the future. The tobacco companies are quite different. They’re very strategic.

They are willing to accept minor compromises and setbacks in the short run in order to protect their long-run interests.”

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