Tobacco Taxes – Lessons Learned and Implications for Alcohol Taxes Frank J. Chaloupka University of Illinois at Chicago Alcohol Policy 15 Washington DC, December 6, 2010

Overview Brief comparison of trends in tobacco and alcohol taxes and prices Tobacco and Alcohol Tax Structures Tobacco and Alcohol Taxation – a Win-Win- Win Strategy Public health gains, increased revenues & popular with voters Highlight links between tobacco tax research and advocacy for tobacco taxes Collaborations with Campaign for Tobacco-Free Kids

Tobacco Product and Alcoholic Beverage Excise Taxes Recent History

Number of State Cigarette Excise Tax Increases,

Number of State Cigarette and Beer Excise Tax Increases,

Average State and Federal Cigarette Taxes, , Inflation Adjusted

Average State and Federal Cigarette and Beer Taxes, , Inflation Adjusted

Tobacco Product Prices , Inflation Adjusted

Tobacco Product and Alcoholic Beverage Prices , Inflation Adjusted

Tobacco Products and Alcoholic Beverages Tax Structures

Tax Structures Tobacco Products Federal excise taxes Specific excise taxes on nearly all tobacco products Cigarettes: $ per pack of 20 cigarettes Roughly equivalent across products State excise taxes Specific excise taxes on cigarettes in all states All but PA tax other tobacco products same rate typically applied to all other tobacco products Often lower than cigarette tax rate Most use ad valorem excise tax (based on value) Small but growing number use specific taxes Disadvantage of specific taxes is need to regularly adjust for inflation in order to retain real value over time

Tax Structures Alcoholic Beverages Federal excise taxes Specific excise taxes on all beverages Different taxes on ethanol and by alcohol content State excise taxes Mix of specific and ad valorem excise taxes Different taxes on ethanol content Generally highest for ethanol in spirits, lowest for ethanol in beer Differ within beverage type as well, based on alcohol content Different taxes based on where purchased Higher for on-premise vs. consumption than for off-premise Exceptions galore e.g. based on volume produced Implicit taxation through state monopoly control & price setting

Best Practices in Tobacco Taxation Simpler is better Favor specific taxes over ad valorem taxes Adjust specific taxes to outpace inflation, income growth Excise taxes account for ≥ 70% of retail prices Much more……

Tobacco Taxation: A Win-Win-Win Why not the same for Alcohol?

CTFK - Lessons from Policy Campaigns What Do Policy Makers Want? A new and reliable source of revenue Support of the voters A way to talk about raising the tax Source: McGoldrick, 2010

Message Platform: WIN, WIN, WIN The Theme for Legislative Campaigns A WIN for public health: prevents kids from smoking and saves lives A WIN for the state budget: raises revenue to balance budgets and fund vital programs A WIN for politicians: it’s popular with voters Source: McGoldrick, 2010

Win 1: Public Health Impact

Win 1: Public Health Impact Increases in tobacco product taxes and prices: Induce current users to try to quit Many will be successful in long term Keep former users from restarting Prevent potential users from starting Particularly effective in preventing transition from experimenting to regular use Reduce consumption among those who continue to use Lead to other changes in tobacco use behavior including substitution to cheaper products or brands, changes in buying behavior, and compensation

Cigarette Prices and Cigarette Sales, , Inflation Adjusted Source: Tax Burden on Tobacco, 2009, and author’s calculations

Cigarette Prices and Adult Smoking Prevalence, , Inflation Adjusted Source: NHIS, Tax Burden on Tobacco, 2009, and author’s calculations Note: green data points for prevalence are interpolated assuming linear trend

Cigarette Prices and Adult Smoking Prevalence, US States & DC, 2007 Source: BRFSS, Tax Burden on Tobacco, 2009, and author’s calculations

Cigarette Prices and Former Adult Smoking Rates, US States & DC, 2007 Source: BRFSS, Tax Burden on Tobacco, 2009, and author’s calculations

Cigarette Prices and Youth Smoking Prevalence, , Inflation Adjusted Source: MTF, Tax Burden on Tobacco, 2009, and author’s calculations

Cigarette Prices, Consumption, and Lung Cancer Death Rates, ,Inflation Adjusted

Getting the Message Out

Getting the Message Out

Getting the Message Out

Win 1: Public Health Impact Increases in alcoholic beverage taxes and prices: Reduce prevalence of adult and youth drinking Lower the frequency of adult and youth drinking Reduce overall alcohol consumption Lower consumption per drinking occasion among those who drink Reduce binge drinking prevalence and frequency Source: Xu and Chaloupka, in press

Win 1: Public Health Impact Extensive econometric and other research shows that higher prices for alcoholic beverages significantly reduce drinking: 10 percent price increase would reduce: Beer consumption by 1.7 to 4.6 percent Wine consumption by 3.0 to 6.9 percent Spirits consumption by 2.9 to 8.0 percent Overall consumption by 4.4 percent Heavy drinking by 2.8 percent Generally larger effects on youth and young adults Source: Wagenaar et al., 2009

Win 1: Public Health Impact Extensive econometric and other research shows that higher prices for alcoholic beverages significantly reduce: Drinking and driving, traffic crashes, and motor-vehicle accident fatalities Deaths from liver cirrhosis, acute alcohol poisoning, alcohol-related cancers, cardiovascular diseases, and other health consequences of excessive drinking Violence, including spouse abuse, child abuse, and suicides Other consequences of drinking, including work-place accidents, teenage pregnancy, and incidence of sexually transmitted diseases Source: Chaloupka, 2009

Win 2: Revenue Impact

Win 2: Revenue Impact Increases in tobacco product taxes: Increase government tax revenues Small share of tax in price Less than proportionate reductions in consumption in response to price increase Revenue increases sustained over time Changes in revenues gradual and predictable

Federal Cigarette Tax and Tax Revenues, , Inflation Adjusted Source: Tax Burden on Tobacco, 2009, and author’s calculations

Arkansas Cigarette Tax and Tax Revenues, , Inflation Adjusted Source: Tax Burden on Tobacco, 2009, and author’s calculations

Georgia Cigarette Tax and Tax Revenues, , Not Inflation Adjusted Source: Tax Burden on Tobacco, 2009, and author’s calculations

Wisconsin Cigarette Tax and Tax Revenues, , Not Inflation Adjusted Source: Tax Burden on Tobacco, 2009, and author’s calculations

Arizona Cigarette Tax and Tax Revenues, , Not Inflation Adjusted Source: Tax Burden on Tobacco, 2009, and author’s calculations

Getting the Message Out

Getting the Message Out

Win 2: Revenue Impact Increases in alcoholic beverage taxes: Increase government tax revenues Even smaller share of tax in price Less than proportionate reductions in consumption in response to price increase Broader tax base implies greater potential revenues Revenue increases sustained over time Changes in revenues gradual and predictable

New York Beer Tax and Tax Revenues, , Not Inflation Adjusted Source: Brewers’ Almanac, 2009, and author’s calculations

Win 3: Popular with Voters

Win 3: Popular with Voters Tobacco Excise Tax Increases: Generally supported by voters Low prevalence of smoking among those most likely to vote Supported by those likely to vote for either party More support when framed in terms of impact on youth tobacco use More support when some of new revenues are used to support tobacco control and/or other health-related activities Comprehensive state tobacco control programs Expanded public health insurance programs (e.g. S-CHIP; Arkansas) Greater support than for other revenue sources

Polling: Including A Youth Smoking Prevention Component Increases Support For Tobacco Tax Hikes Substantially The Exact Wording Of The Question Makes Little Difference … as part of an effort to help reduce smoking, particularly among kids 18% strong …if part of the money is used to fund programs to reduce tobacco use, particularly among kids 58% strong 55% strong 18% strong 41% strong 27% strong Would you favor or oppose an increase in the state tobacco tax? RWJF, National survey of registered Voters - June 2002 The Mellman Group/Market Strategies; from McGoldrick 2010

Total numbers are rounded Darker shading indicates stronger intensity Increasing The Tobacco Tax Is The Preferred Way To Address State Budget Deficits As you may have heard, virtually all states are currently facing severe budget deficits. I am going to read you a list of proposals that have been suggested as a way to address the state budget deficit. After I read each one, please tell me if you FAVOR or OPPOSE that proposal. Reduce funding for education Increase the state gasoline tax Increase the state tobacco tax Oppose Favor 60% 17% 22% 74% International Communications Research Survey January 2010; from McGoldrick 2010 Reduce funding for health care programs Increase the state income tax 20%76% 19%80% 81% 38% Increase the state sales tax 72% 25% Reduce funding for Medicaid services Reduce funding for road maintenance and construction Reduce funding for state law enforcement 81% 70% 78% 16% 26% 20%

Summary

Tobacco and Alcohol Taxes: A Win-Win-Win Policy Excise Tax Increases: Reduce tobacco use and its consequences Reduce drinking in its consequences Increase tobacco tax revenues Increase alcoholic beverage tax revenues Popular with the public, particularly when framed in terms of impact on youth tobacco use and when revenues used for tobacco control and/or other health-related activities Similar support for alcoholic beverage tax increases

ImpacTeen Bridging the Gap Frank Chaloupka