Calif. tobacco tax proposal faces challenge

(CBS News) LOS ANGELES - In California Tuesday night, voters are deciding whether to impose a new tax on tobacco products. For cigarette smokers, it would mean an extra dollar a pack. But it could cost the tobacco companies a lot more than that.

The ad war over Proposition 29 in California has been raging for weeks. One ad said: "A 'yes' vote on Prop 29 will save lives, provide cancer research money, and keep our kids from smoking."

But another ad said: "It raises $735 million in tobacco taxes. But not one penny goes to new funding for cancer treatment."

Health advocates thought the $1 per pack tax on cigarettes would be an easy sell. California has been at the forefront of banning smoking in public places.

Mark DiCamillo conducts the California Field Poll. "A cigarette tax on its face is usually a popular kind of tax with voters," he said, "and the reason for that is that most voters don't smoke."

Just 12 percent of Californians smoke. Donations to pay for ads supporting Prop 29 rolled in from Lance Armstrong's foundation and New York Mayor Michael Bloomberg. A March poll found 67 percent favored the proposal.

Then big tobacco fought back in a big way.

"Prop 29 is flawed. It raises nearly a billion in taxes, but doesn't require it to be spent in California creating jobs," said an anti-Prop 29 ad.

Tobacco giants Phillip Morris and R.J. Reynolds launched a counterattack with a $46-million war chest. Their campaign has cut support for the tax to just 53 percent

Daniel Newman runs a research firm that has tracked the money spent by both sides. "The tobacco groups are spending triple what the 'yes' side -- the cancer groups -- are spending," he said. "The tobacco companies have the resources to spend whatever they feel they need to spend to defeat this measure."

If passed, the tax would raise an estimated $735 million to fund cancer research and education. Critics say it will do nothing to solve California's biggest problem: its massive budget deficit.

Joel Fox is president of a small business association opposed to the tax. "We have a $16-billion deficit and they're trying to wall off some more money," he said. "Not a penny goes to education, not a penny goes to the social welfare programs in the state."

Health researchers tell us that if the tax does pass, they expect the number of smokers here in California to drop from 12 percent to about 8 percent. That alone could cost the tobacco companies about $1 billion, so that is a big part of why they are fighting so hard to defeat this.