Commodity Taxes: Experiences with Tobacco and Alcohol Taxation

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1 Commodity Taxes: Experiences with Tobacco and Alcohol Taxation Frank J. Chaloupka, University of Illinois at Chicago NAS Tax Policy Webinar on Commodity Taxes April 30, 2018

2 Overview Impact of Tobacco & Alcohol Taxes on Use and Consequences Comparing/Contrasting Alcohol & Tobacco Taxes Economic Myths & Facts

3 Impact of Taxes and Prices on Use & Consequences

4 Sales (million packs) Price per Pack (2014 Dollars) Cigarette Prices and Cigarette Sales United States, $ $ $ $ $ $ $ $ $ $1.50 Year Sales Price Source: Tax Burden on Tobacco, 2015, and author s calculations

5 Prevalence Price per Pack (2014 Dollars) Cigarette Prices and Adult Smoking Prevalence United States, Year $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 Prevalence Price Source: NHIS, Tax Burden on Tobacco, 2015, and author s calculations

6 200,000 Monthly Quit Line Calls, United States 11/04-11/09 4/1/09 Federal Tax Increase 150,000 1/1/08 WI Tax Increase 100,000 50,

7 % Ever Smokers Who Have Quit Cigarette Prices and Cessation US States & DC, y = x R² = Average price (in cents) Source: BRFSS, Tax Burden on Tobacco, 2010, and author s calculations

8 Price per Pack (2014 Dollars) Smoking Prevalence, 12th Grade Students $6.50 Cigarette Price and Youth Smoking Prevalence Seniors, United States, $ $ $ $ $ Year 13 Cigarette Price 12th grade prevalence Source: MTF, Tax Burden on Tobacco, 2015, and author s calculations

9 Taxes, Prices and Health: US,

10 Tax per Pack (1/14 Dollars) Revenues (Millions of 1/14 Dollars) Federal Cigarette Tax and Tax Revenues Inflation Adjusted, $1.05 $17,000 $0.95 $0.85 $15,000 $0.75 $13,000 $0.65 $0.55 $11,000 $0.45 $9,000 $0.35 $0.25 $7,000 $0.15 $5, Year Federal Tax Tax Revenues Source: Tax Burden on Tobacco, 2013, and author s calculations

11 Tax Per Pack (Oct dollars) Revenues (Million Oct dollars) $1.25 State Cigarette Taxes and Tax Revenues Inflation Adjusted, $1.15 $17, $1.05 $15, $0.95 $13, $0.85 $0.75 $11, $0.65 $9, $0.55 $7, $0.45 $0.35 $5, $ Year $3, Avg. State Tax Tax Revenues Source: Tax Burden on Tobacco, 2013, and author s calculations

12 Total Funding $Millions (FY10 dollars) Percent Current Smoking State Tobacco Control Program Funding and Youth Smoking Prevalence, United States, $1, $ $ $ $ $ Year 19 total state program funding high school prevalence Source: ImpacTeen Project, UIC; YRBS

13 Alcohol Prices & Drinking 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

14 Beer Tax and Binge Drinking Prevalence US States, 2010 Source: Xuan et al., 2013

15 Alcohol Prices & Consequences 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, alcoholrelated cancers, cardiovascular diseases, and other health consequences of excessive drinking Violence (including spouse abuse, child abuse, and suicide) and other crime Other consequences of drinking, including work-place accidents, teenage pregnancy, and incidence of sexually transmitted diseases Source: Xin & Chaloupka, 20129; Wagenaar et al., 2010

16 Alcohol Prices & Consequences Recent systematic review concluded: Doubling of alcohol taxes would reduce: Alcohol-related mortality by 35% Traffic crash deaths by 11% Sexually transmitted disease by 6% Violence by 2% Crime by 1.4% Source: Wagenaar et al., 2010

17 Comparing/Contrasting Tobacco & Alcohol Taxes

18 State Cigarette Excise Tax Rates 2000 WA OR NV CA AK ID AZ UT MT WY CO NM ND SD NE KS OK TX MN IA MO AR LA WI IL MS VT NY MI PA IN OH WV VA KY NC TN SC AL GA FL ME NH MA RI CT NJ DE MD D.C. $2.00+ per pack $1.50-$1.99 per pack $1.00-$1.49 per pack HI cents per pack <50 cents per pack CDC, Office on Smoking and Health. State Tobacco Activities Tracking and Evaluation (STATE) System.

19 State Cigarette Excise Tax Rates 2006 WA OR NV CA AK ID AZ UT MT WY CO NM ND SD NE KS OK TX MN WI IA IL MO AR MS LA VT NY MI PA IN OH WV VA KY NC TN SC AL GA FL ME NH MA RI CT NJ DE MD D.C. $2.00+ per pack $1.50-$1.99 per pack $1.00-$1.49 per pack HI cents per pack <50 cents per pack CDC, Office on Smoking and Health. State Tobacco Activities Tracking and Evaluation (STATE) System.

20 State Cigarette Excise Tax Rates 2012 CA OR WA NV AK ID AZ UT Anchorage $3.45 MT WY CO NM HI ND SD NE KS OK TX MN WI IA IL MO AR MS LA IN TN MI AL KY Chicago $3.66 OH GA FL PA WV VA SC NC NY VT D.C. ME NJ DE MD NH MA RI CT NYC $5.85 $3.00 per pack $2.00-$2.99 per pack $1.50-$1.99 per pack $1.00-$1.49 per pack cents per pack <50 cents per pack 20 CDC, Office on Smoking and Health. State Tobacco Activities Tracking and Evaluation (STATE) System.

21 State Cigarette Excise Tax Rates January 1, 2018 CA OR WA NV AK ID AZ UT Anchorage $3.45 MT WY CO NM HI ND SD NE KS OK TX MN WI IA IL MO AR MS LA IN TN MI AL KY Chicago$ $6.16 OH GA FL PA WV VA SC NC NY VT D.C. ME NJ DE MD NH MA RI CT NYC $5.85 $3.00 per pack $2.00-$2.99 per pack $1.50-$1.99 per pack $1.00-$1.49 per pack cents per pack <50 cents per pack

22 State Cigarette & Beer Tax Increases, Cigarettes Alcohol Sources: Campaign for Tobacco Free Kids; NIAAA Alcohol Policy Information System; Brewers Almanac Note: Does not show the multiple reductions in beer taxes and the few reductions in cigarette taxes

23 State Beer Excise Tax Rates 2017 Dollars per Gallon Source: Tax Foundation, 2017

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25 Tax Per Pack of 20 Cigarettes & 6 Pack of Beer, 2012 dollars Average Beer & Cigarette Taxes United States, Inflation Adjusted $2.00 $1.50 $1.00 $0.50 $ Beer Tax Cigarette Tax Sources: Campaign for Tobacco Free Kids; NIAAA Alcohol Policy Information System; Brewers Almanac; Bureau of Labor Statistics; and authors calculations. Note: 2012 beer tax is through June 2012

26 3.5 Alcoholic Beverage & Tobacco Product Prices, Inflation Adjusted, Alcoholic Beverages Tobacco Products Source: Tax Burden on Tobacco, Brewers Almanac, and author s calculations

27 Economic Impact - Myths & Facts

28 Common Oppositional Arguments Alcohol and tobacco industries use several common arguments in opposition to tax increases: Won t have the intended impact in terms of reducing use and consequences Will lead to extensive tax avoidance and tax evasion Will harm poor and working class consumers Will lead to massive job

29 Tax Avoidance & Evasion Do NOT Eliminate Health Impact of Higher Taxes Source: Schroth, 2014

30 Tax Avoidance & Evasion Do NOT Eliminate Revenue Impact of Higher Taxes Cook County Cigarette Tax and Tax Revenues - FY01-FY06 $1.75 $1.55 $1.35 $225,000,000 $205,000,000 $185,000,000 $165,000,000 Tax per Pack $1.15 $0.95 $0.75 $0.55 $0.35 Chicago tax rises from 16 to 48 cents Chicago tax up to 68 cents, 1/1/06 Chicago smoking ban, 1/16/06 $145,000,000 $125,000,000 $105,000,000 $85,000,000 $65,000,000 $45,000,000 Tax Revenues $ Fiscal Year $25,000,000 Tax Revenues 30

31 Curbing Tobacco Tax Avoidance & Evasion Adopt the Three-Legged Stool approach License of all involved in tobacco product manufacture, import, distribution, and retail sales Apply high-tech tax stamps Increase enforcement resources and levy strong penalties on violators Source: CDC, 2015

32 Who Pays& Who Benefits Impact of Federal Tax Increase, U.S., % 67.4% 60.0% 50.0% 46.3% 40.0% 30.0% 29.5% 20.0% 20.7% 24.2% 11.9% 10.0% 0.0% <poverty line 1-2* poverty line >2* poverty line Share of Tax Increase Share of Reduced Deaths

33 Impact on the Poor Need to consider overall fiscal system Key issue with tobacco taxes is what s done with the revenues generated by the tax Greater public support for tobacco tax increases when revenues are used for tobacco control and/or other health programs Net financial impact on low income households can be positive when taxes are used to support programs targeting the poor Concerns about regressivity offset by use of revenues for programs directed to poor

34 Tobacco/Alcohol Taxes & Jobs Tax increases decrease consumption of taxed products Small loss of jobs in tobacco/alcohol sectors Money not spent on taxed products will be spent on other goods and services Gains in jobs in other sectors Increase in tax revenues will be spent by government Additional job gains in other sectors Net increase in jobs in almost all

35 Summary

36 Summary Tobacco and alcohol tax increases reduce use and consequences Tax increases generate significant new revenues Tobacco taxes rising over time in most states Alcohol taxes rarely increased Counterarguments about negative economic impact false or greatly overstated

37 For more information: Tobacconomics