Addressing Tobacco Pricing Policies: A Toolkit for Tobacco

Control Program Managers

OverviewOverview

Tobacco’s Toll in the United StatesTobacco’s Toll in the United States Leading preventable cause of death and disease Leading preventable cause of death and disease Kills more than 400,000 people each yearKills more than 400,000 people each year More than $96 billion in annual health care costsMore than $96 billion in annual health care costs Tobacco-related illnesses and deaths:Tobacco-related illnesses and deaths:

Nearly 9/10 of Chronic Obstructive Pulmonary Disease Nearly 9/10 of Chronic Obstructive Pulmonary Disease (COPD/lung disease) Deaths(COPD/lung disease) Deaths11

1/3 of total cancer deaths1/3 of total cancer deaths 2 2

1/5 deaths from coronary1/5 deaths from coronary

heart diseaseheart disease33

Tobacco’s Toll in the United StatesTobacco’s Toll in the United States Every day, 3,500 kids try their first cigaretteEvery day, 3,500 kids try their first cigarette11

About 1,000 kids become daily smokers every day; About 1,000 kids become daily smokers every day; one-third of whom will die from smoking-related one-third of whom will die from smoking-related diseasesdiseases22

19.5% of high school students are current smokers19.5% of high school students are current smokers33

26% of high school students used some type of 26% of high school students used some type of tobacco product in the last monthtobacco product in the last month44

17.9% of adults currently smoke17.9% of adults currently smoke5

IN <STATE>IN <STATE> XX Adults who smokeXX Adults who smoke

XX High school students who smokeXX High school students who smoke

XX Kids (under 18 who try cigarettes for the first time each XX Kids (under 18 who try cigarettes for the first time each year)year)

XX Kids alive today XX Kids alive today

that will die from smokingthat will die from smoking

IN <STATE>IN <STATE>

$XX Medicaid costs $XX Medicaid costs alonealone

<STATE> taxpayers pay <STATE> taxpayers pay $XX per household to $XX per household to treat tobacco-related treat tobacco-related disease disease

$XX Annual health care costs related to $XX Annual health care costs related to tobacco usetobacco use

What does this mean?

““The single most direct and reliable method for The single most direct and reliable method for reducing consumption is to increase the price of reducing consumption is to increase the price of tobacco products, thus encouraging cessation and tobacco products, thus encouraging cessation and reducing the level of initiation of tobacco use.”reducing the level of initiation of tobacco use.”

Taking Action to Reduce Tobacco UseTaking Action to Reduce Tobacco Use National Academy of SciencesNational Academy of Sciences

Institute of MedicineInstitute of Medicine19981998

Raising the Price of TobaccoRaising the Price of Tobacco

Unanimous AgreementUnanimous Agreement U.S. Surgeon GeneralU.S. Surgeon General National Cancer InstituteNational Cancer Institute11

U.S. Centers for Disease Control and PreventionU.S. Centers for Disease Control and Prevention Task Force on Community Preventive ServicesTask Force on Community Preventive Services President’s Cancer PanelPresident’s Cancer Panel11

Institute of Medicine of the National AcademiesInstitute of Medicine of the National Academies World BankWorld Bank World Health OrganizationWorld Health Organization Wall Street Tobacco AnalystsWall Street Tobacco Analysts

Cigarette Excise Tax: Policy TrifectaCigarette Excise Tax: Policy Trifecta

A win for public healthA win for public health

A win for state budgetsA win for state budgets

A win among votersA win among voters

Public Health WinPublic Health WinTotal Cigarette Prices and Cigarette Sales

17000

19000

21000

23000

25000

27000

29000

31000

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006

Sale

s (

millio

n p

acks)

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

Pri

ce (

Jan

. 2007 d

ollars

)

Sales Price

Source: Robert Wood Johnson ImpactTeen Tobacco Chart Book

Trends in Smoking by Young People and Price of Cigarettes Trends in Smoking by Young People and Price of Cigarettes (U.S. 1991- 2007)(U.S. 1991- 2007)

27.5%

30.5%

34.8% 36.4%34.8%

28.5%

21.9% 23.0%20.0%

$2.33

$2.64$2.39 $2.39

$2.71

$3.65

$4.19$3.97 $3.93

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

0%

5%

10%

15%

20%

25%

30%

35%

40%

1991 1993 1995 1997 1999 2001 2003 2005 2007

Youth Smoking Prevalence Cigarette Pack Price (in 2007 dollars)

Source: Robert Wood Johnson ImpactTeen Tobacco Chart Book

Public Health WinPublic Health Win

When prices go up, When prices go up, cigarette consumption goes down, cigarette consumption goes down, especially among:especially among:

KidsKids

Pregnant WomenPregnant Women

Lower Income Lower Income SmokersSmokers

A $1.00 per pack increase in price results A $1.00 per pack increase in price results in:in:

XX fewer kids XX fewer kids becoming smokersbecoming smokers

XX smokers quittingXX smokers quitting

XX lives savedXX lives saved

An Even Bigger Health Win if a Portion of the New Tax Revenue is

Committed to Tobacco Control Programs

Adult Smoking Prevalence in Washington StateAdult Smoking Prevalence in Washington State

State cigarette tax increase to $2.025 per pack on 7/1/05.

State cigarette tax increase to $1.425 per pack on 1/1/02.

22.6%

16.5%

State smoke-free law went into effect on

12/8/2005.

The state tobacco prevention program has been consistently well-funded since it was implemented in 2000.

Source: BRFSS Data

Despite expected and hoped for Despite expected and hoped for declines in cigarette consumption…declines in cigarette consumption…

INCREASING TOBACCO TAXES ALWAYS INCREASING TOBACCO TAXES ALWAYS INCREASES STATE REVENUES INCREASES STATE REVENUES

Tobacco Taxes, Packs Sold, and Tobacco Taxes, Packs Sold, and State RevenuesState Revenues

State Date Increase Amount

State Decline in Packs

Nat’l Decline in Packs

Revenue Increase

New Revenue

IA 2007 $1.00 -30.6% -4.7% + 140.2% $128.0 M

MD 2008 $1.00 -27.1% -4.2% + 45.8% $126.9 M

SD 2007 $1.00 -25.8% -5.0% + 115.4% $31.8 M

TX 2007 $1.00 -21.0% -5.0% + 191.7% $1.0 B

WI 2008 $1.00 -15.0% -4.2% + 93.9% $283.0 M

Budget Win: Tobacco Taxes & RevenuesBudget Win: Tobacco Taxes & Revenues Stable: smoking declines are gradualStable: smoking declines are gradual

Predictable: much easier to estimate than Predictable: much easier to estimate than personal or corporate income tax revenuespersonal or corporate income tax revenues

Adjustable: any declines can be offset by Adjustable: any declines can be offset by additional tax increasesadditional tax increases

Produce health-care cost savings: decline in Produce health-care cost savings: decline in consumption offset by savings in health-care consumption offset by savings in health-care costscosts

Political WinPolitical Win Voters support tobacco tax increasesVoters support tobacco tax increases

Voter support is BIPARTISANVoter support is BIPARTISAN

Voters OPPOSE other tax increases and cuts to Voters OPPOSE other tax increases and cuts to important programsimportant programs

Voters support legislators who vote for tobacco tax Voters support legislators who vote for tobacco tax increasesincreases

Voters support larger tax increases just as much as Voters support larger tax increases just as much as smaller tax increasessmaller tax increases

Map of State Cigarette Tax RatesMap of State Cigarette Tax Rates

Note: states in bold have not raised cigarette excise taxes since 1999 or earlier

WV: 55¢

KY: 60¢VA: 30¢

OK: $1.03

TX $1.41

CO: 84¢

MT: $1.70 ND: 44¢

CA: 87¢

AK: $2.00

NM: $1.66AL: 42.5¢

LA: 36¢

NV: 80¢

IA: $1.36

MO: 17¢

MS: 68¢

Puerto Rico: $2.23

UT: $1.70

TN: 62¢

WA: $3.025

SD: $1.53

KS: 79¢

MA: $2.51 RI: $3.46 CT: $3.40

MD: $2.00DC: $2.50

NY: $4.35

VT: $2.62

OH: $1.25

IL: 98¢

SC: 57¢

NC: 45¢

NH: $1.78 ME: $2.00

WI: $2.52

FL:$1.339

NE: 64¢IN: 99.5¢

WY: 60¢

ID: 57¢

AR: $1.15

GA: 37¢

AZ: $2.00

PA: $1.60

OR: $1.18

HI: $3.20

NJ: $2.70DE: $1.60

MI: $2.00

MN: $1.586

Guam: $3.00No. MarianasIslands: $1.75

State Cigarette Excise Tax Rates - 2011State Cigarette Excise Tax Rates - 2011

Source: CDC, Office on Smoking and Health. State Tobacco Activities Tracking and Evaluation (STATE) System.

FACT: FACT: These taxes are more predictable These taxes are more predictable and stable than state income tax or and stable than state income tax or corporate tax revenues.corporate tax revenues.

MYTH: MYTH: Cigarette tax increases are not a Cigarette tax increases are not a reliable source of future state revenue.reliable source of future state revenue.

FACT: FACT: There are very good models and There are very good models and formulas available for accurate projections.formulas available for accurate projections.

MYTH: MYTH: States will States will not receive as not receive as much net new much net new income as they income as they expect.expect.

FACTS:FACTS:1.1. Cigarette excise tax increases Cigarette excise tax increases

create substantial increases in create substantial increases in revenue.revenue.

2.2. Tobacco industry claims of tax Tobacco industry claims of tax avoidance are exaggerated.avoidance are exaggerated.

3.3. Tax evasion can be prevented.Tax evasion can be prevented.

MYTH: MYTH: Smuggling and black markets Smuggling and black markets will be a huge problemwill be a huge problem..

MYTH: MYTH: Cigarette excise Cigarette excise taxes unfairly target taxes unfairly target smokers.smokers.

FACT:FACT: Smokers pay far Smokers pay far less than what the state less than what the state pays in smoking-related pays in smoking-related healthcare costs.healthcare costs.

MYTH:MYTH:The state The state already already receives receives enough enough

revenue fromrevenue fromtobacco.tobacco.

FACT: FACT: State tobacco State tobacco

settlement settlement payments and payments and tobacco excise tobacco excise taxes do not taxes do not

recover past and recover past and future costs.future costs.

MYTH: MYTH: Cigarette excise tax increases will Cigarette excise tax increases will hurt the state’s economy. hurt the state’s economy.

FACT: FACT: Spending will shift to other products Spending will shift to other products or to consumer savings.or to consumer savings.

MYTH: MYTH: Cigarette excise Cigarette excise tax increases hurt low tax increases hurt low income communities.income communities.

FACT: FACT: The consequences of smoking The consequences of smoking disproportionately hurt low income disproportionately hurt low income populations.populations.

FACT: FACT: Tobacco is a Tobacco is a separate case entirely, separate case entirely, with enormous costs with enormous costs unlike any other unlike any other product.product.

MYTH: MYTH: Raising tobacco excise taxes will lead Raising tobacco excise taxes will lead to taxing other unhealthy items.to taxing other unhealthy items.

They are largeThey are large They are implemented all at onceThey are implemented all at once They impose equivalent tax rates on all They impose equivalent tax rates on all

tobacco products tobacco products They complement local tax increases where They complement local tax increases where

permittedpermitted A PORTION OF REVENUE IS DEDICATED TO A PORTION OF REVENUE IS DEDICATED TO

TOBACCO CONTROLTOBACCO CONTROL

Tobacco Excise Tax Increases Tobacco Excise Tax Increases Largest Impact When:Largest Impact When:

TaTaxingxing Other Tobacco Products (OTP) Other Tobacco Products (OTP) Little cigarsLittle cigars CigarillosCigarillos Large cigar productsLarge cigar products Loose tobaccoLoose tobacco Smokeless tobacco Smokeless tobacco

productsproducts Low-weight smokeless Low-weight smokeless

tobaccotobacco

Tax Strategies on OTPTax Strategies on OTP Percent of wholesale price rather Percent of wholesale price rather

than weight basedthan weight based

Minimum tax ratesMinimum tax rates

Eliminate caps on rates or amounts Eliminate caps on rates or amounts

Minimum tax for percentage of Minimum tax for percentage of priceprice

Define cigarettes to include small Define cigarettes to include small cigars and cigarilloscigars and cigarillos

Non-Tax Price-Related PoliciesNon-Tax Price-Related Policies

Implementing or Implementing or increasing licensing feesincreasing licensing fees

Minimum price lawsMinimum price laws

Smuggling and other tax Smuggling and other tax evasion deterrents evasion deterrents

License FeesLicense Fees Raise cost of tobacco productsRaise cost of tobacco products

Provide better monitoring of salesProvide better monitoring of sales

Can be used to cover enforcement costsCan be used to cover enforcement costs

Minimum Price LawsMinimum Price Laws

Preserve the impact of Preserve the impact of high priceshigh prices

Counter manufacturer Counter manufacturer price incentivesprice incentives

Smuggling and Tax EvasionSmuggling and Tax Evasion Increase fines for smuggling and tax evasionIncrease fines for smuggling and tax evasion

Enforce fines and penalties for smuggling and Enforce fines and penalties for smuggling and other tax evasionother tax evasion

Ban or restrict internet salesBan or restrict internet sales

Implement high-tech tax stampImplement high-tech tax stamp

““It is clear that price has a pronounced effect on It is clear that price has a pronounced effect on the smoking prevalence of teenagers and that the smoking prevalence of teenagers and that the goals of reducing teenage smoking and the goals of reducing teenage smoking and balancing the budget would both be served by balancing the budget would both be served by increasing the Federal excise tax on cigarettes.”increasing the Federal excise tax on cigarettes.”

Myron JohnsonMyron JohnsonPhilip Morris Philip Morris

Research ExecutiveResearch Executive19811981

““The price of tobacco has an important influence on the demand for The price of tobacco has an important influence on the demand for tobacco products, particularly among young people. Substantial tobacco products, particularly among young people. Substantial

increases in the excise taxes would have a considerable impact on the increases in the excise taxes would have a considerable impact on the prevalence of smoking and, in the long term, reduce the adverse prevalence of smoking and, in the long term, reduce the adverse

health effects caused by tobacco.”health effects caused by tobacco.”

US Surgeon General’s Report , 2000US Surgeon General’s Report , 2000