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Philly smokers, drinkers get ready for tax hit

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By The Philadelphia Inquirer
Sunday, May 19, 2013, 8:24 p.m.

The destitute Philadelphia schools are counting on Kevin Sosinavage and others like him to come to the rescue by continuing to do what they're doing: smoking and drinking.

Sosinavage, 45, sat at the bar at SugarHouse Casino on Friday, sucking on a Marlboro and sipping from a bottle of Heineken, both of which would be heavily taxed under Mayor Michael Nutter's plan to avoid doomsday for the school system.

“I wouldn't mind the tax increase if my salary increased as much, but that's not the case,” said Sosinavage, a warehouse worker who lives in Northeast Philadelphia.

The city liquor-by-the-drink tax would grow from 10 percent to 15 percent under the proposal, while a new $2 levy on cigarettes would raise the price of an average pack from $5.85 to $7.85, city officials said.

The likely impact?

The booze tax would not be onerous to drinkers and diners, though nobody who runs a restaurant or eats at one likes higher prices, one expert said. But the effect of the cigarette tax could be profound in positive ways, particularly for young people and not just because their schools face a $304 million budget hole.

“We have this tension between our freedom to choose, and a healthy society, and our need to generate revenue,” said Cait Lamberton, who studies taxes and consumer behavior at the University of Pittsburgh. “But particularly with a cigarette tax, people see that as a win-win.”

People in Philadelphia smoke at some of the highest rates in the country.

In 2010-11, 22 percent of Philadelphia adults were smokers, according to the federal Centers for Disease Control and Prevention. And that was an improvement. In 2007, 25 percent of adults smoked, placing Philadelphia first among American cities, according to the CDC and other agencies. Chicago was next at 20 percent, followed by Phoenix at 19.8 percent and San Antonio at 17.5 percent.

The city has more tobacco retailers per 1,000 youths than any other city except Washington. And fines are not stopping sales to underage smokers.

The effect of what economists call the “just-noticeable difference” can be intense on younger people, said Lamberton, who teaches business administration in the Katz Graduate School of Business. That is the point at which consumers notice that the price of an item has gone up - and subsequently may decide not to buy.

For consumers, the just-noticeable difference is between 20 percent and 25 percent, Lamberton said. The $2 Philadelphia tax would increase the cost of a pack of cigarettes 34 percent.

That would be noticeable to young people, who generally have less money to spend and are less addicted. Studies of increases in the federal cigarette tax — currently $1.01 per pack — show that higher prices caused decreases in consumption among younger smokers, she said.

For older smokers, for big companies that make cigarettes, and for retailers that sell cigarettes, the tax is bad news, Lamberton said.

On the other hand, she predicted that a 5 percent increase on alcoholic drinks would not “create the kind of enormous drop in consumption that restaurants and bars are worried about.”



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