Addressing Tobacco Pricing Policies: A Toolkit for Tobacco Control Program Managers

Overview The Toll of Tobacco Raising the Price of Tobacco Other Tobacco Pricing Policies

The Toll of Tobacco

Tobacco’s Toll in the United States  Leading preventable cause of death and disease  Kills more than 400,000 people each year  More than $96 billion in annual health care costs  Tobacco-related illnesses and deaths:  Nearly 9/10 of Chronic Obstructive Pulmonary Disease (COPD/lung disease) Deaths 1  1/3 of total cancer deaths 2  1/5 deaths from coronary heart disease 3 heart disease 3

Tobacco’s Toll in the United States  Every day, 3,500 kids try their first cigarette 1  About 1,000 kids become daily smokers every day; one-third of whom will die from smoking-related diseases 2  19.5% of high school students are current smokers 3  26% of high school students used some type of tobacco product in the last month 4  17.9% of adults currently smoke  17.9% of adults currently smoke 5

IN IN  XX Adults who smoke  XX High school students who smoke  XX Kids (under 18 who try cigarettes for the first time each year)  XX Kids alive today that will die from smoking

IN IN  $XX Medicaid costs alone  taxpayers pay $XX per household to treat tobacco-related disease  $XX Annual health care costs related to tobacco use

What does this mean?

Raising the Price of Tobacco

“The single most direct and reliable method for reducing consumption is to increase the price of tobacco products, thus encouraging cessation and reducing the level of initiation of tobacco use.” Taking Action to Reduce Tobacco Use National Academy of Sciences Institute of Medicine 1998 Raising the Price of Tobacco

Unanimous Agreement  U.S. Surgeon General  National Cancer Institute 1  U.S. Centers for Disease Control and Prevention  Task Force on Community Preventive Services  President’s Cancer Panel 1  Institute of Medicine of the National Academies  World Bank  World Health Organization  Wall Street Tobacco Analysts

Cigarette Excise Tax: Policy Trifecta  A win for public health  A win for state budgets  A win among voters

Public Health Win Source: Robert Wood Johnson ImpactTeen Tobacco Chart Book

Trends in Smoking by Young People and Price of Cigarettes (U.S ) Source: Robert Wood Johnson ImpactTeen Tobacco Chart Book Public Health Win

When prices go up, cigarette consumption goes down, especially among:  Kids  Pregnant Women  Lower Income Smokers

A $1.00 per pack increase in price results in:  XX fewer kids becoming smokers  XX smokers quitting  XX 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 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/ % 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 Source: BRFSS Data

Despite expected and hoped for declines in cigarette consumption… INCREASING TOBACCO TAXES ALWAYS INCREASES STATE REVENUES

Tobacco Taxes, Packs Sold, and State Revenues

Budget Win: Tobacco Taxes & Revenues  Stable: smoking declines are gradual  Predictable: much easier to estimate than personal or corporate income tax revenues  Adjustable: any declines can be offset by additional tax increases  Produce health-care cost savings: decline in consumption offset by savings in health-care costs

Political Win  Voters support tobacco tax increases  Voter support is BIPARTISAN  Voters OPPOSE other tax increases and cuts to important programs  Voters support legislators who vote for tobacco tax increases  Voters support larger tax increases just as much as smaller tax increases

Map of State Cigarette Tax Rates Note: states in bold have not raised cigarette excise taxes since 1999 or earlier

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

FACT: These taxes are more predictable and stable than state income tax or corporate tax revenues. MYTH: Cigarette tax increases are not a reliable source of future state revenue.

FACT: There are very good models and formulas available for accurate projections. MYTH: States will not receive as much net new income as they expect.

FACTS: 1.Cigarette excise tax increases create substantial increases in revenue. 2.Tobacco industry claims of tax avoidance are exaggerated. 3.Tax evasion can be prevented. MYTH: Smuggling and black markets will be a huge problem.

MYTH: Cigarette excise taxes unfairly target smokers. FACT: Smokers pay far less than what the state pays in smoking-related healthcare costs.

MYTH: The state already receives enough revenue from tobacco. FACT: State tobacco settlement payments and tobacco excise taxes do not recover past and future costs.

MYTH: Cigarette excise tax increases will hurt the state’s economy. FACT: Spending will shift to other products or to consumer savings.

MYTH: Cigarette excise tax increases hurt low income communities. FACT: The consequences of smoking disproportionately hurt low income populations.

FACT: Tobacco is a separate case entirely, with enormous costs unlike any other product. MYTH: Raising tobacco excise taxes will lead to taxing other unhealthy items.

Other Tobacco Pricing Policies

 They are large  They are implemented all at once  They impose equivalent tax rates on all tobacco products  They impose equivalent tax rates on all tobacco products  They complement local tax increases where permitted  A PORTION OF REVENUE IS DEDICATED TO TOBACCO CONTROL Tobacco Excise Tax Increases  Largest Impact When:

Taxing Other Tobacco Products (OTP)  Little cigars  Cigarillos  Large cigar products  Loose tobacco  Smokeless tobacco products  Low-weight smokeless tobacco

Tax Strategies on OTP  Percent of wholesale price rather than weight based  Minimum tax rates  Eliminate caps on rates or amounts  Eliminate caps on rates or amounts  Minimum tax for percentage of price  Define cigarettes to include small cigars and cigarillos

Non-Tax Price-Related Policies  Implementing or increasing licensing fees  Minimum price laws  Smuggling and other tax evasion deterrents

License Fees  Raise cost of tobacco products  Provide better monitoring of sales  Can be used to cover enforcement costs

Minimum Price Laws  Preserve the impact of high prices  Counter manufacturer price incentives

Smuggling and Tax Evasion  Increase fines for smuggling and tax evasion  Enforce fines and penalties for smuggling and other tax evasion  Ban or restrict internet sales  Implement high-tech tax stamp

“It is clear that price has a pronounced effect on the smoking prevalence of teenagers and that the goals of reducing teenage smoking and balancing the budget would both be served by increasing the Federal excise tax on cigarettes.” Myron Johnson Philip Morris Research Executive 1981

“The price of tobacco has an important influence on the demand for tobacco products, particularly among young people. Substantial increases in the excise taxes would have a considerable impact on the prevalence of smoking and, in the long term, reduce the adverse health effects caused by tobacco.” US Surgeon General’s Report, 2000