Wyoming Tobacco Tax and Revenue Prepared by the Wyoming Survey & Analysis Center Tobacco Prevention & Control Evaluation Group For further information

Why Economists are Infamous?  They make too many assumptions  They never conclude  Also some of the economists believe: –“Tax his chew, tax his smoke, Teach him taxes are no joke. Tax his tobacco, tax his drink, Tax him if he tries to think. Tax his booze, tax his beers, If he cries, tax his tears.”

Why Increase Tobacco Taxes  Good for public health –Less tobacco use = better health outcomes –Youth and the poor are more price-sensitive  Good for the economy –Will generate tax revenues –May increase employment, as spending is switched to other goods and services

Why is Raising Tobacco Taxes a Policy Challenge?  Tobacco taxes are NOT new taxes  The challenge and the trade-off: –Higher taxes are good for public health but –Policy makers worry about the economic consequences of higher taxes  Biggest Worry: Reduce revenues ?  Fact is: Higher excise taxes on Tobacco increases the tax revenue

Revenue Generating Potential of Tobacco Taxes  As price rises, consumption falls, but by less than the percentage rise in price (demand is price- inelastic).  As incomes rise, so does consumption - and total revenue (the income elasticity of demand is greater than one).  Production can be closely supervised by the government – easy to collect taxes.

Facts about higher taxes on Tobacco Use? –Excise Taxes raise prices A 10% price increase reduces consumption by –4% in developed countries –8% in developing countries –Poor and Youth are more price-sensitive  A 10% price increase reduces smoking as much as 10% among youth and the poor.  High prices deter youth from starting to smoke Source: World Bank (2004)

Evidence from the UK

The Tobacco Master Settlement Agreement of 1998 Was Viewed As a Landmark Public Health Victory  Tobacco industry agrees to pay $246 billion over 25 years  46 states agree not to bring lawsuits against tobacco industry –Mississippi Texas, Florida, and Minnesota excluded due to prior agreements  Intent: To cover past Medicaid costs related to tobacco injury  States’ goal: 20–25% of settlement for tobacco prevention  Some forms of tobacco marketing restricted November 23, 1998 Source: Campaign for Tobacco-Free Kids. Report on fifth anniversary of 1998 tobacco settlement finds most states fail to adequately fund tobacco prevention programs. Press Release. October 27, Available at

Wyoming Tobacco Excise Tax Rates and Attitudes  Cigarette Excise Tax: 60 cents per pack, 26th in the nation (a tax rate increase went into effect in July Prior to this the Wyoming tobacco excise tax rate was 12 cents per pack and 5th lowest in the nation) (National Center for Tobacco Free Kids).  Spit Tobacco Tax: 20% of the wholesale price.  62.0% of adults in Wyoming favor an increase in the state cigarette tax as a deterrent to smoking (ATS 2002, survey conducted pre-tax rate increase).  34.0% of adults in Wyoming favor an increase of more than $1 a pack in the state cigarette tax (ATS 2002, survey conducted pre-tax rate increase).

Figure 1: State-Level Cigarette Excise Tax Rates, 2004 Sources: Campaign for Tobacco Free Kids (2004); RTI data; Farrely et al., 2003.

Consumption and Revenue Trend  In recent years, average state cigarette excise taxes have doubled from 31 cents (in 2002 dollars) (Farrely et al., 2003) in 1990 to 79.2 cents in  Analysis of an impact on tobacco sales due to an increase in excise tax (in various states and in Wyoming) reveals a typical pattern with a short-term and a long-term component: –Sales usually increase just prior to a tax increase. [This increase is probably driven by consumers who are hoarding cigarettes to delay the impact of the tax.] –Sales decline sharply following an increase in cigarette excise taxes. [The steep decline in sales following the tax increase is probably driven by consumers quitting or cutting back on smoking, and consumers who either use cigarettes that they have bought prior to the tax increase or cigarettes that they have bought from alternative low price sources.] –Following the steep decline in sales immediately after an increase in the cigarette excise tax, sales rise again to settle at a new, generally lower, level than before the tax increase.

Consumption and Revenue Trend  Simple arithmetic post-tax average (12 months: July’03-April’05) consumption was reduced by % compared to the pre-tax average (52 months: Jan’99-April’03; excluding May and June 2003).  Simple arithmetic post-tax average (12 months: July’03-April’05) revenue increased by % compared to the pre-tax average (52 months: Jan’99-April’03; excluding May and June 2003).

Figure 2: Monthly Sales for Wyoming (in packs) Figure 2: Monthly Sales for Wyoming (in packs) Source: Wyoming Department of Revenue.

Figure 3: Monthly Cigarette Excise Tax Revenue for Wyoming Source: Wyoming Department of Revenue.

Figure 4: Comparisons of Pre and Post Tobacco Tax Average Monthly Sales Source: Wyoming Department of Revenue.

Figure 5: Comparisons of Pre and Post Tobacco Tax Revenue Source: Wyoming Department of Revenue.

Table 1: Comparing Other Tobacco Tax Rates in WY and the Neighboring States States (W.P.: Wholesale Price) Smokeless & Chewing Tobacco Tax Snuff TaxSmoking Tobacco Tax Wyoming 20.0% of W. P. Idaho 40.0% of W. P. Montana 25.0% of W. P. 35 cents per ounce 25.0% of W. P. Nebraska 20.0% of W. P. S Dakota 10.0% of W. P. Utah 35.0% of W. P. Colorado 20.0% of W. P. Source: Campaign for Tobacco-Free Kids. Report on fifth anniversary of 1998 tobacco settlement finds most states fail to adequately fund tobacco prevention programs. Press Release. October 27, Available at

Table 2: Comparing Spit Tobacco Use in Wyoming and the Neighboring States StatesFemaleMaleTotal Wyoming5.0%21.1%13.3% Idaho2.0%9.0%5.7% Montana5.0%20.0%13.2% Nebraska2.8%17.0%10.1% S Dakota 6.7%23.5%15.3% Utah1.2%4.9%3.1% US Median 1.7%12.8%7.2% Source: YRBS, 2003.

Why do we need to worry?

Some Facts World: Annual Tobacco deaths (in millions) Developed 2 ~3 Developing ~2 ~7 World Total 4 ~10 u 1 in 2 long-term smokers killed by their addiction u 1/2 of deaths in middle age (35-69) u Source: World Bank (2002)

Tobacco deaths are on the increase: Case of India

Table 3: Estimating Economic Cost Source: Source: National Center for Tobacco-Free Kids, June 14, 2004, / Eric Lindblom. CDC estimate (for the year 1999): Nationwide Smoking Caused Health Costs $7.18 per pack Wyoming’s State Smoking Caused Health Costs in 1998$106 million CDC estimate (for the year 1999): Wyoming’s State Smoking Caused Deaths 807(SAMMEC, 1999) Wyoming’s State Loss of Future Earnings From Smoking- attributable Premature Mortality in 1999 (CDC SAMMEC). $65 million Wyoming’s Smoking Caused Productivity Losses in 1999$136 million Wyoming’s Smoking Caused Medicaid Programs Costs in 1999 $11.2 million Federal Smoking Medicaid Costs in 1999$17.7 million Wyoming’s Taxpayer Smoking Caused Federal/State Tax Burden (1999) $93.6 million

The Benefits of Investing in Tobacco Prevention Maine –High school smoking has declined 48% –Middle school smoking has declined 59% Mississippi –High school smoking has declined 29% –Middle school smoking has declined 48% Source: Campaign for Tobacco-Free Kids. Report on fifth anniversary of 1998 tobacco settlement finds most states fail to adequately fund tobacco prevention programs. Press Release. October 27, Available at

Conclusion  Excise taxes levied on tobacco products typically reflect policymakers’ desire to balance improved health with increases in revenue.  Tax policy aimed at containing tobacco consumption (deterrence) and at increasing revenue can successfully achieve both objectives.

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