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
Overview Impact of Tobacco & Alcohol Taxes on Use and Consequences Comparing/Contrasting Alcohol & Tobacco Taxes Economic Myths & Facts www.tobacconomics.org
Impact of Taxes and Prices on Use & Consequences
Sales (million packs) Price per Pack (2014 Dollars) 30000 Cigarette Prices and Cigarette Sales United States, 1970-2014 $6.00 28000 $5.50 26000 $5.00 24000 $4.50 22000 $4.00 20000 $3.50 18000 $3.00 16000 $2.50 14000 $2.00 12000 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 $1.50 Year Sales Price Source: Tax Burden on Tobacco, 2015, and author s calculations
Prevalence Price per Pack (2014 Dollars) 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 Cigarette Prices and Adult Smoking Prevalence United States, 1970-2014 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 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
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 50,000 0 2004 2005 2005 2005 2006 2006 2006 2007 2007 2007 2008 2008 2008 2009 2009 2009
% Ever Smokers Who Have Quit Cigarette Prices and Cessation US States & DC, 2009 70 65 y = 0.0283x + 43.083 R² = 0.371 60 55 50 45 350 400 450 500 550 600 650 700 750 800 850 Average price (in cents) Source: BRFSS, Tax Burden on Tobacco, 2010, and author s calculations
Price per Pack (2014 Dollars) Smoking Prevalence, 12th Grade Students $6.50 Cigarette Price and Youth Smoking Prevalence Seniors, United States, 1991-2014 $5.75 33 $5.00 28 $4.25 23 $3.50 18 $2.75 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Year 13 Cigarette Price 12th grade prevalence Source: MTF, Tax Burden on Tobacco, 2015, and author s calculations
Taxes, Prices and Health: US, 1980-2005 www.tobacconomics.org
Tax per Pack (1/14 Dollars) Revenues (Millions of 1/14 Dollars) Federal Cigarette Tax and Tax Revenues Inflation Adjusted, 1955-2012 $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 $5,000 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Year Federal Tax Tax Revenues Source: Tax Burden on Tobacco, 2013, and author s calculations
Tax Per Pack (Oct. 2009 dollars) Revenues (Million Oct. 2009 dollars) $1.25 State Cigarette Taxes and Tax Revenues Inflation Adjusted, 1955-2012 $1.15 $17,000.00 $1.05 $15,000.00 $0.95 $13,000.00 $0.85 $0.75 $11,000.00 $0.65 $9,000.00 $0.55 $7,000.00 $0.45 $0.35 $5,000.00 $0.25 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 Year $3,000.00 Avg. State Tax Tax Revenues Source: Tax Burden on Tobacco, 2013, and author s calculations
Total Funding $Millions (FY10 dollars) Percent Current Smoking State Tobacco Control Program Funding and Youth Smoking Prevalence, United States, 1991-2009 37 $1,000 35 $800 33 31 $600 29 27 $400 25 $200 23 21 $0 1991 1994 1997 2000 2003 2006 2009 Year 19 total state program funding high school prevalence www.tobacconomics.org Source: ImpacTeen Project, UIC; YRBS
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
Beer Tax and Binge Drinking Prevalence US States, 2010 Source: Xuan et al., 2013
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
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
Comparing/Contrasting Tobacco & Alcohol Taxes
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 50-99 cents per pack <50 cents per pack CDC, Office on Smoking and Health. State Tobacco Activities Tracking and Evaluation (STATE) System.
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 50-99 cents per pack <50 cents per pack CDC, Office on Smoking and Health. State Tobacco Activities Tracking and Evaluation (STATE) System.
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 50-99 cents per pack <50 cents per pack 20 CDC, Office on Smoking and Health. State Tobacco Activities Tracking and Evaluation (STATE) System.
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 50-99 cents per pack <50 cents per pack 21 @tobacconomics
State Cigarette & Beer Tax Increases, 2000-2015 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 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
State Beer Excise Tax Rates 2017 Dollars per Gallon Source: Tax Foundation, 2017
Tax Per Pack of 20 Cigarettes & 6 Pack of Beer, 2012 dollars Average Beer & Cigarette Taxes United States, Inflation Adjusted 1973-2012 $2.00 $1.50 $1.00 $0.50 $0.00 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 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
3.5 Alcoholic Beverage & Tobacco Product Prices, Inflation Adjusted, 1953-2010 3 2.5 2 1.5 1 0.5 0 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 Alcoholic Beverages Tobacco Products Source: Tax Burden on Tobacco, Brewers Almanac, and author s calculations
Economic Impact - Myths & Facts
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 losses @tobacconomics
Tax Avoidance & Evasion Do NOT Eliminate Health Impact of Higher Taxes www.tobacconomics.org Source: Schroth, 2014
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 $0.15 2001 2002 2003 2004 2005 2006 Fiscal Year $25,000,000 Tax Revenues 30
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 www.tobacconomics.org Source: CDC, 2015
Who Pays& Who Benefits Impact of Federal Tax Increase, U.S., 2009 70.0% 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
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 www.tobacconomics.org
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 states @tobacconomics
Summary
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 www.tobacconomics.org
For more information: Tobacconomics http://www.tobacconomics.org @tobacconomics fjc@uic.edu