Columnists Corner

Blood Revenue

By Norman E. Kjono, March 27, 2005

Earlier in this Washington legislative session HB 2075, proposed legislation for a $1.00 per pack new cigarette tax, failed. Shortly after that bill failed Washington Governor Gregoire submitted her budget to the legislature. New revenue sources in that budget include an 20 cents per pack immediate increase in cigarette taxes, to be followed by an increase to 80 cents per pack tax in 2007. Governor Gregoire crafted that proposal to be a “sure thing:” the proposal would fund Initiative 278, providing for decreases in class size and a funding source for teachers’ pay raises. The two bills recently introduced to enact that portion of the Governor’s proposed budget, HB 2302 and SB 6096, are discussed in this commentary.

As this is written a Sgt. named Mike is serving with U.S. Army Special Operations in Afghanistan . He is scheduled for rotation back to Fort Lewis in Washington this July. Assuming all goes according to schedule, my brother will be visiting from Hawaii in July. My brother and his wife plan to greet her son when he comes home. Like hundreds of thousands of American families with members serving in our military today we wish Mike Godspeed and a safe journey home. I look forward to my brother’s visit. Not only will it be a pleasure to yak and catch up, but I would also like to say thank you to Mike and his comrades in arms for their service.

GAO and ATF Conclusions

The U.S. Government Accountability Office published GAO-04-641, Cigarette Smuggling: Federal Law Enforcement Efforts and Seizures Increasing dated May 28, 2004. A three page excerpt of relevant pages from that report can be accessed at GAO-04-641.PDF . A few of the conclusions in that report are as follows:

1. Summary Page: “Cigarette smuggling results in lost tax revenues, undermines government health policy objectives, can attract sophisticated and organized criminal groups, and could be a source of funding for terrorists.”

2. Summary Page: “According to ATF, illegal cigarette trafficking worldwide is a multibillion dollar a year crime phenomenon, with some cigarette smugglers having ties to terrorist groups.”

3. Page 6: “Indications are that the possibility of making huge profits has attracted criminals, including international and domestic organized crime groups, to smuggling.”

4. Page 7: “According to an ATF report, some cigarette smugglers have ties with terrorist groups, and there are indications that terrorist group involvement in illicit cigarette trafficking, as well as the relationship between criminal groups and terrorist groups, will grow in the future because of the large profits that can be made.”

5. Page 7: “Many states, as well as foreign countries, have increased cigarette taxes, resulting in a large difference in the wholesale price and price paid by consumers at the retail level and creating potential illicit profits of $7 to $13 per carton of cigarettes.”

NOTE: At more than $14.00 per carton Washington’s cigarette tax is already beyond the $7 to $13 threshold ATF says creates large illicit profits for terrorists. Governor Gregoire’s proposal would add $2.00 then $8.00 more potential profits to terrorists, ultimately producing a handsome return for Osama bin Laden et al of $22.00 per carton. One penny per pack of new cigarette taxes makes the illicit cigarette trade terrorist problems worse, let alone adding $8.00 per carton incentive.

6. Page 7: “According to ICE officials, states with higher cigarette excise taxes are generally the states that lose cigarette tax revenue due to smuggling.”

7. Page 7: “States could also lose other revenue. The Master Settlement Agreement, signed in November 1998, . . . requires four of the nation’s largest tobacco companies to make annual payments to states. . . . The annual payments are to be adjusted downward when a cigarette manufacturer’s sales volume decreases, such as lost sales because consumers purchased smuggled cigarettes instead of legitimate cigarettes.

Our troops do not confront organized armed services of a sovereign nation in Iraq and Afghanistan. Indeed, many of our operations in Afghanistan have been focused on locating and capturing Osama bin Laden, leader of the terrorist group that destroyed the World Trade Towers in New York and attacked the Pentagon September 11, 2001. The enemy our troops confront in both theatres of war are, by and large, terrorists who are members of terrorist organizations cited by GAO and ATF in their reports about cigarette taxes. Such groups must, therefore, seek alternative – often illicit – means to finance their operations. The extraordinary profitability of cigarette smuggling – made possible in large part by anti-tobacco activists who receive special-interest grants from the pharmaceutical Robert Wood Johnson foundation in Princeton , New Jersey – makes that illicit activity an attractive and relatively low risk source of finding for terrorist groups. I have little doubt that terrorist cell members would consider running smuggling operations within the borders of the United States to be light duty compared to blowing themselves up with a car bomb in Baghdad . As GAO points out, raising cigarette taxes increases the attractiveness of smuggling operations because the economic benefits derived therefrom also expand in direct proportion. The link between increasing cigarette taxes and putting our troops at risk is therefore for direct, compelling and not at all tenuous or exaggerated.

Politicians who still support new cigarette taxes being levied on their personal “Target Group” of choice, persons who smoke, cannot plead ignorance of the above conclusions reported by GAO and ATF. The GAO report is dated ten months ago in May 2004 and the press has written about that report in the specific context of terrorists and placing our troops in harm’s way. From the San Mateo County Times , March 11, 2005, "Funding Terrorism: No Butts About It," by Steve Geisser:

" SACRAMENTO — An emerging new tale of age-old certainties — taxes and death — begins in California with the flip of a cigarette butt and ends in Iraq with a bullet hitting a U.S. soldier. . . . federal terrorism investigators told the San Mateo County Times on Thursday that such seemingly innocent legislation, further hiking high cigarette costs in California , would fuel their already tough battle against terrorist groups' lucrative smuggling operations in the United States . Two new reports by a separate federal watchdog agency, the U.S. General Accounting Office, detail the multibillion-dollar problem. . . . ‘The illicit sale of cigarettes and other commodities by terrorist groups and their supporters has become a crucial part of their funding activities,' said William Billingslea, a senior intelligence analyst for the Office of Strategic Intelligence and Information in the Bureau of Alcohol, Tobacco, Firearms and Explosives in Washington . 'Raising the tax on cigarettes widens the difference between the wholesale and retail price and inadvertently creates opportunity for traffickers, who evade the tax and gain the profits,' he said. . . . 'Illicit cigarette trafficking now rivals drug trafficking as the method of choice to fill the bank accounts of terrorists,' Billingslea said. 'Each state that raises its cigarette taxes is a new prospect for illicit profits gained by trafficking in cigarettes.'" (Underline added.)

Christine O. Gregoire, meet Jane Fonda. Jane Fonda apparently found it to be fashionable to be photographed sitting on a North Vietnamese anti-aircraft gun battery. Christine Gregoire goes one better: she seems to regard as politically correct providing shells to load the guns. So who pulls the trigger, RWJ foundation grant recipients? Do some politicians’ compulsions to tax “Target Group” U.S. citizens result in a bullet in the back for our troops?

The risks to all of us from such terrorist operations are not limited to combat zones in foreign lands. The same funding that can purchase munitions to supply terrorists in Fallujah can also supply logistic support for another September 11 attack here in the USA . Do many who allegedly decry the horrific events of September 11, 2001 now cavalierly support tax bills that can provide terrorists the resources to drop the Sears Tower in Chicago or destroy the Columbia Tower in Seattle as an encore?

Osama bin Laden, meet Al Capone. It’s a shame that Osama’s potential profits would be increased by Washington Governor Gregoire’s eighty-cents-per-pack new tobacco tax brainstorm. While ATF informs California legislators that any increase in the cigarette tax makes an already-significant problem worse Governor Gregoire’s response is to pile on $8.00 per carton more profit opportunities for Osama’s gang. At least state governments were not raking in a percentage of Al’s revenues, while turning a blind eye to the consequences of his operations.

Washington HB 2302 and SB 6096

Let’s meet the folks in our Washington legislature who could help make that revenue stream for terrorists possible. Governor Gregoire submitted her state budget proposal to our legislature early last week. It appears that the Democrat-controlled Washington House and Senate have taken Governor Gregoire’s proposal to heart. Last week two new revenue bills were filed in the House and Senate. Both bills seek an initial increase of 20 cents per pack in cigarette taxes, which would increase further to 80 cents per pack June 2007. The House bill is identified as at the request of the Governor. Those bills are:

HB 2302, Generating revenues to fund Initiative No. 728.
Sponsored by Democrat Representatives McIntire, Kenney, McCoy
Representatives McIntire and Keeney also sponsored HB 1714, a predecessor to statewide smoking ban HB 2038 that failed.
Referred to House Finance Committee

Members of the House Finance Committee are Representatives: McIntire (D), Hunter (D), Orcutt (R), Roach (R), Ahern (R), Conway (D), Ericksen (R), Hasegawa (D), and Santos (D)
Scheduled for public hearing March 29, 2005

SB 6096, Generating revenues to fund Initiative No. 728.
Sponsored by Democrat Senators Poulsen, Fraser, Prentice
Referred to Senate Ways & Means Committee

Members of the Senate Ways & Means Committee are Senators Prentice (D), Fraser (D), Doumit (D), Zarelli (R), Brandland (R), Fairley (D), Hewitt (R), Kohl-Wells (D), Parlette (R), Pflug (R), Pridemore (R), Rasmussen (D), Regala (D), Roach (R), Rockefeller (D), Schoesler (R), and Thibaudeau (D).

Initiative 728 was passed in a previous year to reduce class size in schools and provide funding for teacher’s compensation. Its implementation has been held up to date due to lack of funding.

The three sponsors for each bill include the chairs of the committees to which the bills were referred in each house, Rep. McIntire and Sen. Prentice. The economic fate of about 1 million “Target” consumers in Washington , and probably the well-being of our troops in harm’s way, now rests in the hands of nine members of our state House of Representatives and seventeen Senators.

When considering this legislation for new cigarette taxes the question about what organizations and agendas behind the scenes may support and oppose the bills is important. While by no means an exhaustive list, I have prepared an Excel file of related campaign contributions for the three sponsors of each bill in the Senate and the House. That Excel file may be accessed by Clicking Here. There are total of $58,625 in campaign donations from parties with an interest in this legislation – nearly $10,000 per legislator on average -- for just the six bill sponsors. Multiply that sum over 9 members of the House Finance Committee and 17 members of the Senate Ways & Means Committee and you will begin to get a feel for the magnitude of special-interest dollars that can influence the outcome of votes for the two bills.

Who are the financial sponsors from that list that could support HB 2032 and SB 6096?

1. WA Tribal Interests: Collville Federated Tribes $ 1,800

Umatilla $ 500

Makah $ 500

Muckleshoot $ 7,600

Nisqually $ 3,200

Puyallup $ 1,475

Squaxin $ 1,700

Suquamish $ 1,000

Swinomish $ 675

Tulalip $ 1,350

Upper Skagit $ 1,300

Wash. Indian Gaming Comm. $ 3,375

Total: $ 24,475

41.7 percent of money that could influence committee votes for these bills comes from Washington tribal interests. When out-of-state tribal donations to Washington legislators are considered that figure approaches 50 percent. Tribal leaders have an extraordinary vested interest in supporting Governor Gregoire’s initiatives regarding smoking and tobacco. A statewide smoking ban (aggressively supported by Gregoire and failed in both Pierce County as well as our legislature) grants tax-exempt and smoking-ban-exempt tribal hospitality venues a virtually exclusive franchise – a monopoly – to accommodate patrons who smoke. In addition, depending on the contract negotiated with the state, tribes may retain a portion of cigarette taxes collected. For example, a current bill (HB 1915) that passed our legislature this session allows the Puyallup tribe to charge about $3.00 less per carton in cigarette taxes, yet retain 30 percent of the tax proceeds for tribal use. Not only does that legislation give the Puyallup tribe a clear competitive price advantage but the tribe also retains a significant portion of the state cigarette tax it collects from consumers. These bills are, in effect, a 24 cent per pack pay raise for the Puyallup tribe because they would retain 30 percent of the final 80 cents in increased tax cost charged to consumers. Like HB 2302 discussed in this commentary, Rep. McIntyre was also a sponsor for HB 1915.

Tribes must find a better way to puff their bottom lines than supporting tax policy that puts our troops at risk and increases the risk of another terrorist attack as occurred September 11, 2001.

2. Schools, Teachers: Public School Employees $ 4,200

Wash. Education Association $ 1,925

Wash. Federation of Teachers $ 1,475

Wash. School Administrators $ 300

Wash. School Principals $ 300

Wash St. School Retirees $ 900

Total: $ 8,900

Adding teacher and school-related campaign donations to those of Washington tribal interests increases the financial influence to support these bills to 56.9 percent of the total. Adding out-of-state tribal donations puts is at about 60 percent. Governor Gregoire has crafted this new cigarette tax bill to be a “sure thing” because it is the designated funding source to implement I-728. The new cigarette revenues are “justified” because the proceeds will go to the “mother’s milk” issues of decreasing class size and increasing teacher’s pay. Do we realistically expect that those who are to be direct beneficiaries of that new tax would oppose the bills to enact it?

Teachers and school administrators must demand a better way to fund reducing class size and providing much-needed pay raises than depositing funds possibly stained with the blood of the their students’ parents who currently serve in the military. If they don’t like that characterization then go talk to Governor Gregoire – she engineered this tobacco tax deal and put it in their laps as the way to have legitimate needs funded. I don’t want to hear about it. My son – a 2004 Lake Washington High School graduate now going through the U.S. Naval Academy system – and several other members of our family serving in the military are not fodder for their political agenda cannons. We expect our schools and teachers to be exemplars of civic responsibility and moral conduct. It is time for teachers and school administrators to show they intend to live up to that responsibility.

3. Hospitality Suppliers: Anhauser Busch $ 750

Distilled Spirits Council $ 675

Miller Brewing $ 2,250

United Distillers & Vintners $ 300

Wash Beer & Wine Wholesalers $ 2,200

Wash. Restaurant Assoc. $ 1,650

Wash. Soft Drink Assoc. $ 3,200

Total: $ 11,025

Adding hospitality supplier’s donations to those school-related and tribal contributions puts 75.7 percent of the campaign money solidly behind passing HB 2302 and SB 6096, excluding out-of-state tribal money. Money talks. All of the above hospitality suppliers have a direct vested interest in passing these bills. The alternative is former Washington Governor Gary Locke’s proposal to add new taxes to beer, wine, liquor, and carbonated soft drinks. Governor Gregoire has, in a very calculating manner, carefully placed brewing companies and other hospitality suppliers between the rock of their own bottom lines and the hard place of putting many of their own customers’ and customers’ children or spouses at increased risk in combat zones.

The above hospitality suppliers would be well advised to consider that supporting these bills may turn their brand name into a reminder for their customers that their sons, daughters, husbands and wives may be at increased risk of death or injury in combat zones, as a direct consequence of those companies lobbying for their bottom lines at many of their customers’ expense.

4. Altria (Philip Morris): Kraft Foods $ 1,650

Philip Morris USA $ 1,975

Total: $ 3,625

Campaign donations by Altria Group companies bring the total dollars in support of these two bills to $48,025 (81.9 percent) of campaign donations, excluding out-of-state tribal donations. Adding in out-of state tribal donations brings us to about 85 percent of the campaign bucks in support of passing HB 2302 and SB 6096. PLEASE, let’s get over the delusion that Philip Morris and allegedly anti-tobacco are arch-rivals. Philip Morris has provided campaign donations to Rep. Rodney Tom, sponsor if HB 2075 for a $1.00 cigarette tax that failed and a statewide smoking ban. As listed in the Excel spreadsheet attached, Kraft Foods has provided campaign donations for House Finance Committee Chair McIntyre. Since then-Washington Attorney General Gregoire negotiated the 1998 tobacco Master Settlement Agreement (MSA) Philip Morris has seen its profits reach records levels and its stock strongly rally from 1990s prices. As previously reported by Forces.org and the press, Governor Gregoire now refers to Philip Morris lawyers, who generously arranged a campaign fund raiser for her, as her friends. In addition, Forbes magazine reported last year that major brands increased their prices per pack well over $1.00, while blaming those price increases on the MSA. Finally, under the George H.W. Bush administration’s $135 million 1991 to 1998 Project ASSIST, according to Centers for Disease control and Prevention prevalence statistics (see SMOKE RATE) declines adult Current Smokers stabilized, adult Former Smokers (those who quit) declined, and youth smoking skyrocketed 43 percent nationwide. In short, allegedly anti-tobacco activists and their political supporters have shown themselves to be the best friends that Marlboro Man ever had. These bills provide the opportunity for Philip Morris to do again what it did with the MSA price increases: use the new cigarette tax to increase prices beyond that cost and reap the windfall profits.

Philip Morris must not trade its interests in for those of families with loved ones in combat zones by compromising the safety of our troops in hostile fire zones through supporting, or remaining silent about, these two cigarette tax bills.

5. Pharmaceuticals: GlaxoSmithKline $675.00

While the campaign donations for the six bill sponsors from pharmaceutical donors are minimal it must be noted that such companies hardly need campaign donations to push Big Drugs’ interests and agendas. Beyond that fact that the Washington Department of Health directly pushes their “Smoke Free” nicotine delivery device products, virtually every county health department in our state has become a branch sales office for Big Drugs. And anti-tobacco activists are and have been heavily financed by the pharmaceutical Robert Wood Johnson Foundation, according to Value Line stock reports the largest shareholder of former Nicotrol distributor Johnson & Johnson.

Every increase in the price of cigarettes through increased taxes on tobacco products directly increases the “parity price” that “Smoke Free” nicotine distributors can charge for their replacement therapy products. Recently a carton of Marlboros sold for $39.00 at a local Washington smoke shop, while a roughly equivalent box of Nicorette 4 mg nicotine gum sold for $59 at a pharmacy. That’s about a 35 percent higher price, with GlaxoSmithKline paying no MSA fees and no cigarette taxes. The small size of campaign donations identified for the six legislator sponsors of these new cigarette tax bills belies the immense profit-potential vested-interest that pharmaceutical nicotine distributors have in this legislation.

But will GlaxoSmithKline continue to aggressively push its hidden vested-interest for price increases on cigarettes regardless of who may die as a consequence? How deep does the pharmaceutical rabbit hole go? Six feet under or more?

So There We Have It

The Governor’s fix appears to be in, the die cast . . . or is it? How will tribes, teachers, hospitality suppliers and tobacco companies respond to the political corner that Governor Gregoire has craftily painted them into? Will they find a better way or simply extend the degree to which the tobacco control agenda hurts us all – now possibly to the point of death and dismemberment both in combat zones and adding risks of another attack like September 11 here at home? I believe that we hardly need inquire about pharmaceuticals.

As former House Majority Leader Tip O’Neil reportedly said, “All politics is local.” It doesn’t get more local than waiting for a son, daughter, husband or wife to return home alive and in one piece from Iraq or Afghanistan . Nor does the thought of a local tragedy escape us as we wait for the next shoe to drop after the World Trade Center attacks, with aterrorist encore performance of dropping the Sears Tower in Chicago or Columbia Building in Seattle .

Maybe it’s just time for we the people to grow up. We do that by understanding the fundamental reality that what we allow to be done to our neighbor ultimately will also adversely affect us. What goes out truly and with certainty comes around. Energy always balances, every time.

I just hope that our object lesson in those truths doesn’t cost any soldier or sailor an arm and a leg.

Norman E. Kjono

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