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News Article

Nov 9, 2007

San Jose Mercury News: Analysis: Tobacco Tax Could Doom Plan For Health Overhaul

By Mike Zapler

SACRAMENTO - Searching for ways to fund their plan for universal health care, Democrats this week turned to an easy-to-vilify target: tobacco. They proposed a $2-a-pack cigarette tax that would generate nearly $2 billion a year and, supporters say, carry the added benefit of curbing smoking, a worthy goal in the context of health care reform.
Problem is, it might be the very thing that dooms health care reform.
A new cigarette tax would be tantamount to a declaration of war on Big Tobacco, which last year spent more than $65 million to defeat a $2.60-a-pack tax on the California ballot and just this week easily turned back an attempt in Oregon to raise tobacco taxes.
"You can bet they would aggressively fight it, and I don't think they'd be alone," said Sacramento political consultant Frank Schubert, who advised tobacco companies during last year's ballot campaign.
Any attempt to overhaul health care is bound to invite opposition, given the huge financial stakes in the system. The tobacco tax idea is an example of the difficult balance that Gov. Arnold Schwarzenegger and Democrats are struggling to strike at the negotiating table: achieving meaningful reform without triggering insurmountable opposition.
The challenge is amplified by the fact that any health care proposal is certain to end up on the ballot, where interest groups can spend tens or even hundreds of millions of dollars to defeat it.
"Everyone knows that a $100 million opposition campaign is an overwhelming proposition," said the governor's communications director, Adam Mendelsohn. Schwarzenegger, who made his opposition to taxes the centerpiece of his re-election campaign, so far is resisting the tobacco proposal.
To Democrats, the tobacco tax is the best in a lineup of bad choices to close a roughly $2 billion gap to provide universal health care. With more than 6.5 million Californians uninsured for all or part of the year - 20 percent of the population - extending insurance to everyone is expected to cost more than $14 billion a year.
One early idea was to raise the state sales tax, but it was scrapped after polling showed it was unpopular with voters.
More recently, Schwarzenegger resuscitated his earlier proposal to lease the state lottery to a private operator, then use the proceeds to help finance his health care plan. But Democrats balked, doubting, among other things, that the move would generate anywhere near the amount of money the governor claimed.
So this week, Assembly Speaker Fabian Núñez, D-Los Angeles, and Senate President Pro Tem Don Perata, D-Oakland, settled on the tobacco tax. Perata, who opposed the cigarette tax on last year's ballot that would have raised millions for various health programs, did not relish the idea, but said he went along with it in the interest of trying to reach a deal with the governor.
But Schwarzenegger insists leasing the lottery would be a more reliable source of money. Still, he and Democrats have significantly narrowed their differences on other issues and hope to approve a plan by the end of the month, then collect signatures for a ballot initiative next year.
Striking a deal in the Legislature, however, will mean little if voters ultimately reject the plan at the ballot box. With mixed success, Schwarzenegger has lobbied this year to enlist support for his health plan from business interests, which bankrolled a campaign in 2004 to overturn legislation that would have extended insurance to more than 1 million people.
Political observers expect that insurance giant Blue Cross would lead a charge against the health care reforms Schwarzenegger and Democrats are contemplating. The question is, who would join them?
In another point of contention with the governor, Democrats included a provision in their plan to allow bulk purchasing of prescription drugs. While supporters say the proposal would reduce prices for consumers, it also could draw major opposition from the well-heeled pharmaceutical industry.
As for tobacco, backers of the proposed cigarette tax - which would be on top of the current 87-cent-a-pack tax - acknowledge the industry's political might. But they say the millions of dollars tobacco companies likely would spend against a health care initiative wouldn't necessarily ensure defeat, given the industry's low standing among the public.
"If you have all of the health care community backing reform, I think it can trump the money spent by tobacco," said Kris Deutschman, a political consultant who advised last year's failed campaign to raise the tobacco tax. "Because all they have is money and self-interest."
Tim Hodson, a former legislative staffer who now directs Sacramento State University's Center for Political Studies, acknowledged the difficulty Schwarzenegger and Democrats face in trying to placate potential opponents.
But "the bottom line," Hodson said, "is that if you avoid offending everybody, you have nothing worth fighting for."
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