Tobacco bonds threatened by electronic cigarettes / Jul 2014

[Anjaffm]

Could Electronic Cigarettes Sound the Death Knell for Tobacco Bonds? - My Vapor Savior

At this moment in time, there is about $90 billion worth of tobacco bonds outstanding on which investors receive annual interest payments and eventual redemption. In simple terms, the states which decided to issue tobacco bonds used future compensation income from the tobacco companies as collateral to back them. The bonds were then sold to investors which effectively insured that many states across the US received their long-term annual compensation payments upfront, using the actual payments to cover future bond interest and redemption payments.

This is common practice within the financial markets, and is simply a case of selling an IOU to investors in exchange for collating long-term income streams in one upfront payment. The bonds themselves were structured to understand a decline in tobacco cigarette sales of between 2% and 3% per annum which seemed fair back in 1998. However, the ongoing demand for electronic cigarettes continues to have a major impact upon all areas of the tobacco industry and there may be trouble ahead for bond payments.

Shortfalls already emerging

A number of press articles have already picked up on the fact that some US state finance departments have been forced to dip into their financial reserves to cover a shortfall on interest payments to bondholders. This is a situation which could get markedly worse if the decline in US tobacco sales continues as expected - some experts predict it could hit as high as 7% decline per annum. Tobacco cigarette sales have on average declined by 3.4% per annum between 2000 and 2013 which in itself is outside of the “comfort zone” upon which the bonds were structured.

Yeah. First they whine that people should stop smoking.
And now they whine because people are doing just that.

1. do not spend money that you do not have
2. do not come to rely on possible future income that will simply fall into your lap without you doing anything to earn it
3. Be careful what you wish for

Anybody need any other "reason" for widespread bans on e-cigs? Any other "reason" for the FDA taking action on e-cigs?
The tobacco market - and the MSA payments flowing into government coffers from sales of tobacco cigarettes - must be protected at all cost.

 

[RosaJ]

Thank you Anja for sharing this! Anyone who still thinks it's not about the money needs to stop drinking the Koolaid.

 

[rothenbj]

Caught in their own misrepresentation. Anything lost in taxes and MSA funds should easily be made up in the fictitious "society costs" of health and productivity claims.

 

[RosaJ]

Caught in their own misrepresentation. Anything lost in taxes and MSA funds should easily be made up in the fictitious "society costs" of health and productivity claims.

Yeah, "society costs" and health and productivity cleaims are "soft" dollar savings. They want, and obviously need, hard cash now, because they've already spent the money and they would have to default on their "promise to pay" the investors. No wonder there's such an urgency with the FDA, CDC, Glantz, et al!

EDIT: Talk about a pyramid scheme!!!

Someone would have to explain to those bondholders why their schemes failed.

This brings to mind the song: "I can see clearly now, the rain is gone. I can see all obstacles in my way..."

 

[NC_Fog]

The governments did it to themselves. Most every time they wanted money for pet projects they funded it on the backs of smokers. Then they gladly accepted the MSA funds as a windfall to blow as they see fit. Smokers are paying for everything from city sidewalks to state of the art sports stadiums.

I started vaping mainly because I got tired of being a wallet for the government even though I was starting to get concerned for my health. They can get their money from somewhere else or just quit blowing it.

I watched the N.C. session as they passed the tax on eliquid. They are very afraid of the money that they are losing from smokers that are either switching to vaping or quitting all together.

 

[RosaJ]

It's not so much the money they're losing from vaping right now, but the potential that vaping has to totally take over in 10 years time. They're looking at dwindling revenues so they want to step on the wagon and start the revenue coming in from vaping so that the conversion from smoking to vaping doesn't affect their wallets. That's why it's so important to them to equate vaping to smoking.

EDIT: I'll tell you one thing, I'll vape 0 nic without a problem. I'm tired of being a pawn to these yahoos.

 

[NC_Fog]

The federal and state governments have lost $6121.78 in excise(sin)taxes from just me alone in just a little over 3yrs. Think about it, I'm just one.

 

[RosaJ]

The federal and state governments have lost $6121.78 in excise(sin)taxes from just me alone in just a little over 3yrs. Think about it, I'm just one.

Multiply that by 2, for 2 years in my case.

 

[rothenbj]

The governments did it to themselves. Most every time they wanted money for pet projects they funded it on the backs of smokers. Then they gladly accepted the MSA funds as a windfall to blow as they see fit. Smokers are paying for everything from city sidewalks to state of the art sports stadiums.

I started vaping mainly because I got tired of being a wallet for the government even though I was starting to get concerned for my health. They can get their money from somewhere else or just quit blowing it.

I watched the N.C. session as they passed the tax on eliquid. They are very afraid of the money that they are losing from smokers that are either switching to vaping or quitting all together.

They're in the process of funding school funding issues in Philadelphia by allowing the city to increase cigarette taxes by $2. Anyone that can drive will just take a trip to surrounding counties and buy their smokes in bulk. Some will finally quit. The ones that this will seriously impact are the poorest residence who don't have other options. Would they consider a tax on things like soda instead where there would be a larger base to draw revenue from? Never, there would be outrage.

 

[Kent C]

This would be an interesting development:

"There is a suspicion in some quarters that politicians are looking to bring electronic cigarettes under the umbrella of US tobacco regulations which could potentially open a legal loophole. If electronic cigarettes were treated in a similar fashion to their tobacco counterparts, could electronic cigarette sales become part of the figure upon which annual compensation payments are calculated?"

If done, that would mean the ecigarette vendors (I know some are tobacco companies) would end up paying the 'health issues' created by cigarettes

This could be the incentive to 'help out' the Tobacco companies wrt ecigs. That way people can still make them the bad guys. And as they say, there would be 'legal issues' if they tried to get MSA money from our vendors - those who are actually saving governments 'society costs' because they're getting people off cigs and making them healthier. They should be rewarded, not taxed! Or at least left alone.

 

[DrMA]

I don't recall where I saw this, but it's a brilliant and short description of gov't mentality: if it works, regulate it; if it still works, tax it; if it doesn't work, subsidize it.

 

[NorthOfAtlanta]

Ronald Reagan:

Ronald Reagan - Words from the Old Gipper

ETA:About half way down.

 

[DrMA]

Ronald Reagan:

Ronald Reagan - Words from the Old Gipper

ETA:About half way down.

Even more relevant, then, since it came from the very top of the govt.

 

[Anjaffm]

They're in the process of funding school funding issues in Philadelphia by allowing the city to increase cigarette taxes by $2. Anyone that can drive will just take a trip to surrounding counties and buy their smokes in bulk. Some will finally quit. The ones that this will seriously impact are the poorest residence who don't have other options. Would they consider a tax on things like soda instead where there would be a larger base to draw revenue from? Never, there would be outrage.

Oh, now I get the "for the chiiiiiiidren" blathering!
A smoker who switches to e-cigs no longer pays cigarette tax. But cigarette tax pays for school funding. Thus, smoking IS ACTUALLY "for the children". And vaping - as in: not smoking and not paying cigarette tax - is NOT "for the children".
Holy mackerel!

And my own home country is also dependent on tobacco tax. In Germany, tobacco tax is the second largest "consumption" tax after gasoline tax. We pay over 4 Euro (5,44 US$) cigarette tax for one (19 cigs) pay of cigarettes. PLUS 19% VAT. And we pay - currently - 2.08 US$ for one liter (quart) of gasoline (cheapest gasoline in your city // currency calculator )

Both activities - driving and smoking - are subject to heavy "sin taxes". Driving, you know, is oh-so-harmful for the environment, so let's tax it out the wazoo.

Yes, governments have come to rely on the taxes / proceeds from oh-so-harmful activities. And now they do not enjoy having to face their own lies.

And yes, their taxes do tend to hit the poorest citizens the hardest. Also for driving. The 15 minute Subway ride into the nearest big city has gone up to 4.25 Euro (5.78 US$) lately, one way. Can you imagine earning minimum wage and paying that amount of money, just to get to and from your job? Damned if you do, and damned if you don't.

 

[Kent C]

Oh, now I get the "for the chiiiiiiidren" blathering!
A smoker who switches to e-cigs no longer pays cigarette tax. But cigarette tax pays for school funding. Thus, smoking IS ACTUALLY "for the children". And vaping - as in: not smoking and not paying cigarette tax - is NOT "for the children".
Holy mackerel!

And my own home country is also dependent on tobacco tax. In Germany, tobacco tax is the second largest "consumption" tax after gasoline tax. We pay over 4 Euro (5,44 US$) cigarette tax for one (19 cigs) pay of cigarettes. PLUS 19% VAT. And we pay - currently - 2.08 US$ for one liter (quart) of gasoline (cheapest gasoline in your city // currency calculator )

Both activities - driving and smoking - are subject to heavy "sin taxes". Driving, you know, is oh-so-harmful for the environment, so let's tax it out the wazoo.

Yes, governments have come to rely on the taxes / proceeds from oh-so-harmful activities. And now they do not enjoy having to face their own lies.

And yes, their taxes do tend to hit the poorest citizens the hardest. Also for driving. The 15 minute Subway ride into the nearest big city has gone up to 4.25 Euro (5.78 US$) lately, one way. Can you imagine earning minimum wage and paying that amount of money, just to get to and from your job? Damned if you do, and damned if you don't.

The "children" and the "environment" drives all.

Wiki: SCHIP - State Children's Health Insurance Program

"Hillary Clinton had discussed an SCHIP-ish program with a White House health policy coordinator during the time her full-blown health care plan had suffered political failure.

The new initiative was proposed at Bill Clinton's January 1997 State of the Union address, with the stated goal of coverage up to five million children. Kennedy continued to write much of the bill, using the increase in tobacco taxes to pay the $20 billion price tag."

Parents should thank god, allah, gaia, for smokers.

Environment - recent Drudge headlines:

OZ CITY HITS COLDEST TEMP IN 103 YEARS!

Coldest Antarctic June Ever Recorded...

GORE RAMPS UP WARNINGS...

 

[Anjaffm]

@Kent C:

so true.

Now get this:
In 2011, Germany started leveling a special tax on nuclear power plants. The reason? Nuclear power plants do not produce CO2, and thus, they do not have to pay the CO2 tax that is leveled on other power plants. What to do? Level a special tax on nuclear power plants because they do not produce CO2. (!) (No, I am not kidding you)
The nuclear power plants went to court against this punitive tax for not producing (taxable) CO2 and won in court, in April 2014. They are waiting for 2.2 billion Euro refunds now.

Talk about stupid, silly taxes. Now, punishing power plants for not producing (taxable) CO2 is kind of reminiscient of attempting to ban vaping because it does not contain (taxable) tobacco.

 

[Kent C]

The nuclear power plants went to court against this punitive tax for not producing (taxable) CO2 and won in court, in April 2014. They are waiting for 2.2 billion Euro refunds now.

Talk about stupid, silly taxes. Now, punishing power plants for not producing (taxable) CO2 is kind of reminiscient of attempting to ban vaping because it does not contain (taxable) tobacco.

Good for the nukes!! It's very similar if they try to pull ecigs into the cigarette category.

And, it shows that for gov't, the tax, not "public health", is the highest priority.

 

[Uma]

They're in the process of funding school funding issues in Philadelphia by allowing the city to increase cigarette taxes by $2. Anyone that can drive will just take a trip to surrounding counties and buy their smokes in bulk. Some will finally quit. The ones that this will seriously impact are the poorest residence who don't have other options. Would they consider a tax on things like soda instead where there would be a larger base to draw revenue from? Never, there would be outrage.

I used to go broke from all the "quitters" who kept bumming smokes.

 

[Uma]

Seattle wants to tax solar powered energy saving smart cars, calif wants to tax by the mile driven, soda taxes are being introduced constantly in order to accustom the people to the idea until they give in and say "what the hey, it shouldn't be drank anyway"...

 

[RosaJ]

Seattle wants to tax solar powered energy saving smart cars, calif wants to tax by the mile driven, soda taxes are being introduced constantly in order to accustom the people to the idea until they give in and say "what the hey, it shouldn't be drank anyway"...

Sure, and when people stop, they'll think of something else to make up for the loss in tax revenue. When does it end?...