tobacco taxes – lessons learned and implications for alcohol taxes frank j. chaloupka university...

Tobacco Taxes – Lessons Learned and Implications for Alcohol Taxes

Frank J. ChaloupkaUniversity of Illinois at Chicago

Alcohol Policy 15Washington DC, December 6, 2010

www.bridgingthegapresearch.org

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, 2000-2009

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

5

10

15

20

Cigarettes


Number of State Cigarette and Beer Excise Tax Increases, 2000-2009

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

5

10

15

20

Cigarettes Alcohol


Average State and Federal Cigarette Taxes, 1973-2009, Inflation Adjusted

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

Cigarettes


Average State and Federal Cigarette and Beer Taxes, 1973-2009, Inflation Adjusted

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

Cigarettes Beer


Tobacco Product Prices 1973-2009, Inflation Adjusted

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

1.85

2.85

3.85

4.85

5.85

6.85

7.85

Tobacco Products


Tobacco Product and Alcoholic Beverage Prices 1973-2009, Inflation Adjusted

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

1.85

2.85

3.85

4.85

5.85

6.85

7.85

Tobacco Products Alcoholic Beverages

Tobacco Products and Alcoholic BeveragesTax Structures


Tax Structures

• Tobacco Products

• Federal excise taxes• Specific excise taxes on nearly all tobacco products

• Cigarettes: $1.0066 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



Increases in tobacco product taxes and prices:

Induce current users to try to quitMany will be successful in long term

Keep former users from restarting

Prevent potential users from startingParticularly effective in preventing transition from

experimenting to regular use

Reduce consumption among those who continue to use

Lead to other changes in tobacco use behaviorincluding substitution to cheaper products or brands, changes in buying behavior, and compensation


Cigarette Prices and Cigarette Sales, 1970-2009, Inflation Adjusted

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

15950

17950

19950

21950

23950

25950

27950

29950

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

Sales Price

Year

Sal

es (

mill

ion

pack

s)

Pric

e (O

ct..

2009

dol

lars

)

Source: Tax Burden on Tobacco, 2009, and author’s calculations


Cigarette Prices and Adult Smoking Prevalence, 1970-2008, Inflation Adjusted

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

19

23

27

31

35

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

Prevalence Price

Year

Pre

vale

nce

Pric

e ()

ct.2

009

dol

lars

)

Source: NHIS, Tax Burden on Tobacco, 2009, and author’s calculationsNote: 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

y = -1.7038x + 27.473R² = 0.1756

11

13

15

17

19

21

23

25

27

29

$3.25 $3.75 $4.25 $4.75 $5.25 $5.75 $6.25

Adu

lt Pr

eval

ence

Price per Pack


Cigarette Prices and Former Adult Smoking Rates, US States & DC, 2007

Source: BRFSS, Tax Burden on Tobacco, 2009, and author’s calculations

y = 1.6826x + 17.443R² = 0.2317

15.5

17.5

19.5

21.5

23.5

25.5

27.5

29.5

$3.25 $3.75 $4.25 $4.75 $5.25 $5.75 $6.25

Ad

ult

Pre

vale

nce

Price per Pack


Cigarette Prices and Youth Smoking Prevalence, 1991-2008, Inflation Adjusted

Source: MTF, Tax Burden on Tobacco, 2009, and author’s calculations

6

11

16

21

26

31

36

$2.25

$3.00

$3.75

$4.50

1991 1993 1995 1997 1999 2001 2003 2005 2007

Sm

okin

g P

reva

lenc

e

Pri

ce p

er p

ack

(2/0

9 do

llars

)

Year

Cigarette Price 12th grade prevalence 10th grade prevalence 8th grade prevalence


Cigarette Prices, Consumption, and Lung Cancer Death Rates, 1980-2006,Inflation Adjusted


Getting the Message Out



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



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



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



Increases in tobacco product taxes:

Increase government tax revenuesSmall share of tax in priceLess 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, 1955-2009, Inflation Adjusted


1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

$0.15

$0.25

$0.35

$0.45

$0.55

$0.65

$5,000.00

$6,000.00

$7,000.00

$8,000.00

$9,000.00

$10,000.00

$11,000.00

$12,000.00

$13,000.00

$14,000.00

$15,000.00

Federal Tax Tax Revenues

Year

Tax

Per

Pac

k (O

ct.

2009

do

llar

s)

Rev

enu

es (

Mil

lio

n O

ct.

2009

do

llar

s)


Arkansas Cigarette Tax and Tax Revenues, 1986-2009, Inflation Adjusted


1986198719881989199019911992199319941995199619971998199920002001200220032004200520062007$0.30

$0.35

$0.40

$0.45

$0.50

$0.55

$0.60

$0.65

$0.70

$0.75

$0.80

$90.0

$110.0

$130.0

$150.0

Tax per pack Tax Revenues, Millions

Ta

x p

er

pa

ck

Re

ve

nu

es

(m

illio

ns

)


Georgia Cigarette Tax and Tax Revenues, 1965-2009, Not Inflation Adjusted


1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

$0.0

$50.0

$100.0

$150.0

$200.0

Tax Revenues (Millions) Tax per Pack

Tax per Pack

Tax Renues (Millions)


Wisconsin Cigarette Tax and Tax Revenues, 1965-2009, Not Inflation Adjusted


196519661967196819691970197119721973197419751976197719781979198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$0

$100

$200

$300

$400

$500

$600

$700

$800

Tax Revenues (millions) Tax Rate

Tax Per Pack

Tax Revenues (

millions)


Arizona Cigarette Tax and Tax Revenues, 1965-2009, Not Inflation Adjusted


19651967196919711973197519771979198119831985198719891991199319951997199920012003200520072009

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$0

$100

$200

$300

$400

$500

Tax Revenues (millions) Tax Rate

Tax Per Pack

Tax Revenues (

millions)


Getting the Message Out



Increases in alcoholic beverage taxes:

Increase government tax revenuesEven smaller share of tax in priceLess than proportionate reductions in consumption in

response to price increaseBroader tax base implies greater potential revenues

Revenue increases sustained over time

Changes in revenues gradual and predictable


New York Beer Tax and Tax Revenues, 1990-2008, Not Inflation Adjusted

Source: Brewers’ Almanac, 2009, and author’s calculations

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008$0.00

$0.05

$0.10

$0.15

$0.20

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

Tax Revenues (millions) Tax per Gallon

Tax Rate

Tax Revenues

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 SubstantiallyThe Exact Wording Of The Question Makes Little Difference

69%

24%

7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Favor Oppose No Opin

… as part of an effort to help reduce smoking,

particularly among kids

70%

22%

8%

0%

10%

20%

30%

40%

50%

60%

70%

80%


18%strong

…if part of the money is used to fund programs to reduce tobacco use, particularly

among kids

52%

34%

14%

0%

10%

20%

30%

40%

50%

60%

70%

80%


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 2002The Mellman Group/Market Strategies; from McGoldrick 2010

www.bridgingthegapresearch.orgTotal numbers are roundedDarker shading indicates stronger intensity

Increasing The Tobacco Tax Is The PreferredWay 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.

10 6-60-21

10 7-65-16

6 13-64-16

7 12-57-18

10 10-58-21

10 12-53-20

8 17-54-18

10 17-40-30

47 13-27-11

-100 -80 -60 -40 -20 0 20 40 60 80

Reduce funding for education

Increase the state gasoline tax

Increase the state tobacco tax

Oppose Favor

60%

17%

22%74%

International Communications Research SurveyJanuary 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


ImpacTeenhttp://www.impacteen.org

Bridging the Gaphttp://www.bridgingthegapresearch.org

Frank [email protected]

mailto:[email protected]

tobacco taxes – lessons learned and implications for alcohol taxes frank j. chaloupka university...

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