wyoming tobacco tax and revenue prepared by the wyoming survey & analysis center tobacco...

Wyoming Tobacco Wyoming Tobacco Tax and RevenueTax and Revenue

Prepared by thePrepared by the

Wyoming Survey & Analysis Center Wyoming Survey & Analysis Center Tobacco Prevention & Control Evaluation GroupTobacco Prevention & Control Evaluation Group

For further information email: For further information email: [email protected]@uwyo.edu

mailto:[email protected]

Why Economists are Infamous?Why Economists are Infamous?

They make too many assumptionsThey make too many assumptions They never concludeThey never conclude

Also some of the economists believe:Also some of the economists believe:– ““Tax his chew, tax his smoke, Tax his chew, tax his smoke,

Teach him taxes are no joke. Teach him taxes are no joke. Tax his tobacco, tax his drink, Tax his tobacco, tax his drink, Tax him if he tries to think. Tax him if he tries to think. Tax his booze, tax his beers,Tax his booze, tax his beers,If he cries, tax his tears.”If he cries, tax his tears.”

Why Increase Tobacco TaxesWhy Increase Tobacco Taxes

Good for public healthGood for public health– Less tobacco use = better health outcomesLess tobacco use = better health outcomes– Youth and the poor are more price-sensitiveYouth and the poor are more price-sensitive

Good for the economyGood for the economy– Will generate tax revenuesWill generate tax revenues– May increase employment, as spending is May increase employment, as spending is

switched to other goods and servicesswitched to other goods and services

Why is Raising Tobacco Taxes a Why is Raising Tobacco Taxes a Policy Challenge?Policy Challenge?

Tobacco taxes are NOT new taxesTobacco taxes are NOT new taxes The challenge and the trade-off:The challenge and the trade-off:

– Higher taxes are good for public health Higher taxes are good for public health

butbut– Policy makers worry about the economic Policy makers worry about the economic

consequences of higher taxesconsequences of higher taxes Biggest Worry: Reduce revenues ? Biggest Worry: Reduce revenues ?

Fact is: Higher excise taxes on Tobacco Fact is: Higher excise taxes on Tobacco increases the tax revenueincreases the tax revenue

Revenue Generating Potential of Revenue Generating Potential of

Tobacco TaxesTobacco Taxes

As price rises, consumption falls, but by less than As price rises, consumption falls, but by less than the percentage rise in price (demand is price-the percentage rise in price (demand is price-inelastic). inelastic).

As incomes rise, so does consumption - and total As incomes rise, so does consumption - and total revenue (the income elasticity of demand is revenue (the income elasticity of demand is greater than one).greater than one).

Production can be closely supervised by the Production can be closely supervised by the government – easy to collect taxes. government – easy to collect taxes.

Facts about higher taxes on Facts about higher taxes on Tobacco Use?Tobacco Use?

– Excise Taxes raise prices Excise Taxes raise prices A 10% price increase reduces consumption byA 10% price increase reduces consumption by

– 4% in developed countries 4% in developed countries – 8% in developing countries8% in developing countries

– Poor and Youth are more price-sensitivePoor and Youth are more price-sensitive A 10% price increase reduces smoking as much as A 10% price increase reduces smoking as much as

10% among youth and the poor.10% among youth and the poor. High prices deter youth from starting to smoke High prices deter youth from starting to smoke

Source: World Bank (2004)Source: World Bank (2004)

Evidence from the UKEvidence from the UK

R e a l P ric e a n d C o n s u m p tio n o f C ig a re tte sin th e U K , 1 9 7 1 -9 6

Real price and consumption of cigarettes in the UK1971-1996

9000

10000

11000

12000

13000

14000

15000

16000

17000

1971 1974 1977 1980 1983 1986 1989 1992 1995

Year

Cig

aret

te C

onsu

mpt

ion

1994

pri

ces (

£m)

£ 1.25

£ 1.45

£ 1.65

£ 1.85

£ 2.05

£ 2.25

£ 2.45

£ 2.65

Pric

e (£

) 199

4 va

lue

PRICE

CONSUMPTION

S ource : T own send J 19 98 , C entra l Statistic a l O ffice (U K ) (1 96 5 -9 3 )

The Tobacco Master Settlement Agreement of 1998 The Tobacco Master Settlement Agreement of 1998 Was Viewed As a Landmark Was Viewed As a Landmark

Public Health VictoryPublic Health Victory

Tobacco industry agrees to pay $246 billion over 25 yearsTobacco industry agrees to pay $246 billion over 25 years

46 states agree not to bring lawsuits against tobacco industry46 states agree not to bring lawsuits against tobacco industry

– Mississippi Texas, Florida, and Minnesota excluded due Mississippi Texas, Florida, and Minnesota excluded due to prior agreementsto prior agreements

Intent: To cover past Medicaid costs related to Intent: To cover past Medicaid costs related to tobacco injurytobacco injury

States’ goal: 20–25% of settlement for States’ goal: 20–25% of settlement for tobacco preventiontobacco prevention

Some forms of tobacco marketing restrictedSome 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, 2004. Available at http://tobaccofreekids.org/Script/DisplayPressRelease.php3?Display=708.

http://tobaccofreekids.org/Script/DisplayPressRelease.php3?Display=708

Wyoming Tobacco Wyoming Tobacco Excise Tax Rates and AttitudesExcise Tax Rates and Attitudes

Cigarette Excise Tax: 60 cents per pack, 26th in the nation Cigarette Excise Tax: 60 cents per pack, 26th in the nation (a tax rate increase went into effect in July 2003. Prior to (a tax rate increase went into effect in July 2003. Prior to this the Wyoming tobacco excise tax rate was 12 cents per this the Wyoming tobacco excise tax rate was 12 cents per pack and 5th lowest in the nation) (National Center for pack and 5th lowest in the nation) (National Center for Tobacco Free Kids).Tobacco Free Kids).

Spit Tobacco Tax: 20% of the wholesale price. Spit Tobacco Tax: 20% of the wholesale price.

62.0% of adults in Wyoming favor an increase in the state 62.0% of adults in Wyoming favor an increase in the state cigarette tax as a deterrent to smoking (ATS 2002, survey cigarette tax as a deterrent to smoking (ATS 2002, survey conducted pre-tax rate increase).conducted pre-tax rate increase).

34.0% of adults in Wyoming favor an increase of more than 34.0% of adults in Wyoming favor an increase of more than $1 a pack in the state cigarette tax (ATS 2002, survey $1 a pack in the state cigarette tax (ATS 2002, survey conducted pre-tax rate increase).conducted pre-tax rate increase).

Figure 1: State-Level Cigarette Figure 1: State-Level Cigarette Excise Tax Rates, 2004Excise Tax Rates, 2004

Sources: Campaign for Tobacco Free Kids (2004); RTI data; Farrely et al., 2003.

Consumption and Revenue TrendConsumption and Revenue Trend In recent years, In recent years, average state cigarette excise taxes have doubledaverage state cigarette excise taxes have doubled

from 31 cents (in 2002 dollars) (Farrely et al., 2003) in 1990 to 79.2 from 31 cents (in 2002 dollars) (Farrely et al., 2003) in 1990 to 79.2 cents in 2004.cents in 2004.

Analysis of an impact on tobacco sales due to an increase in excise 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 tax (in various states and in Wyoming) reveals a typical pattern with a short-term and a long-term component:short-term and a long-term component:– Sales usually increase just prior to a tax increaseSales usually increase just prior to a tax increase. .

[This increase is probably driven by consumers who are hoarding[This increase is probably driven by consumers who are hoardingcigarettes to delay the impact of the tax.]cigarettes to delay the impact of the tax.]

– Sales decline sharply following an increaseSales decline sharply following an increase in cigarette excise in cigarette excise taxestaxes. .

[The steep decline in sales following the tax increase[The steep decline in sales following the tax increase is probably driven by is probably driven byconsumers quitting or cutting back on smoking, and consumers who either useconsumers quitting or cutting back on smoking, and consumers who either usecigarettes that they have bought prior to the tax increase or cigarettes that theycigarettes that they have bought prior to the tax increase or cigarettes that theyhave bought from alternative low price sources.]have bought from alternative low price sources.]

– Following the steep decline in sales immediately after an increase Following the steep decline in sales immediately after an increase in the cigarette excise tax, in the cigarette excise tax, sales rise again to settle at a new, sales rise again to settle at a new, generally lower, level than before the tax increasegenerally lower, level than before the tax increase..

Consumption and Revenue TrendConsumption and Revenue Trend

Simple arithmetic post-tax average (12 months: Simple arithmetic post-tax average (12 months: July’03-April’05) July’03-April’05) consumption was reduced by consumption was reduced by 17.40 %17.40 % compared to the pre-tax average (52 compared to the pre-tax average (52 months: Jan’99-April’03; excluding May and June months: Jan’99-April’03; excluding May and June 2003). 2003).

Simple arithmetic post-tax average (12 months: Simple arithmetic post-tax average (12 months: July’03-April’05) July’03-April’05) revenue increased by 212.55% revenue increased by 212.55% compared to the pre-tax average (52 months: compared to the pre-tax average (52 months: Jan’99-April’03; excluding May and June 2003).Jan’99-April’03; excluding May and June 2003).

Figure 2: Monthly Sales for Wyoming Figure 2: Monthly Sales for Wyoming (in packs)(in packs)

Source: Wyoming Department of Revenue.

Total Cigarette Sales In Wyoming

01000000200000030000004000000500000060000007000000

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Actual Sales

Tax Increase in July 2003 (from $0.12 to $0.60)

Projected Sales if Tax Not Enacted

Figure 3: Monthly Cigarette Figure 3: Monthly Cigarette Excise Tax Revenue for WyomingExcise Tax Revenue for Wyoming


Total Cigarette Excise Tax Revenue in Wyoming

0500000

1000000150000020000002500000

To

tal T

ob

acco

Tax

Rev

enu

e

ActualRevenue

Projected Revenues if Tax not Enacted

Tax Increase in July 2003 (from $0.12 to $0.60)

Figure 4: Comparisons of Pre and Post Figure 4: Comparisons of Pre and Post Tobacco Tax Average Monthly SalesTobacco Tax Average Monthly Sales


Comparison of Pre and Post Tax Average Monthly Sales

0

1000000

2000000

3000000

4000000

5000000

6000000

Janu

ary

Mar

chM

ay July

Septe

mbe

r

Novem

ber

Cig

are

tte

Sa

les

(P

ac

ks

)

Pre-Tax Monthly AverageSales (Jan'1999-June'2003)

Post-Tax Average Salesfrom July'2003-April'2005

Figure 5: Comparisons of Pre and Post Figure 5: Comparisons of Pre and Post Tobacco Tax RevenueTobacco Tax Revenue


Comparison of Pre and Post Tobacco Tax Revenue

0

500000

1000000

1500000

2000000

2500000

Janu

ary

Mar

ch May Ju

ly

Septe

mbe

r

Novem

ber

Tax

Rev

enu

e Pre Tax Monthly AverageTax Revenue (Jan'1999-June'2003)

Post-Tax AverageRevenue from July'2003-April'2005

Table 1: Comparing Other Tobacco Tax Table 1: Comparing Other Tobacco Tax Rates in WY and the Neighboring StatesRates in WY and the Neighboring StatesStatesStates

(W.P.: Wholesale (W.P.: Wholesale Price)Price)

Smokeless & Chewing

Tobacco Tax

Snuff Tax Smoking

Tobacco Tax

WyomingWyoming 20.0% of W. P.20.0% of W. P. 20.0% of W. P.20.0% of W. P. 20.0% of W. P.20.0% of W. P.

IdahoIdaho 40.0% of W. P.40.0% of W. P. 40.0% of W. P.40.0% of W. P. 40.0% of W. P.40.0% of W. P.

MontanaMontana 25.0% of W. P.25.0% of W. P. 35 cents per ounce

25.0% of W. P.25.0% of W. P.

NebraskaNebraska 20.0% of W. P.20.0% of W. P. 20.0% of W. P.20.0% of W. P. 20.0% of W. P.20.0% of W. P.

S DakotaS Dakota 10.0% of W. P.10.0% of W. P. 10.0% of W. P.10.0% of W. P. 10.0% of W. P.10.0% of W. P.

UtahUtah 35.0% of W. P.35.0% of W. P. 35.0% of W. P.35.0% of W. P. 35.0% of W. P.35.0% of W. P.

ColoradoColorado 20.0% of W. P.20.0% of W. P. 20.0% of W. P.20.0% of W. P. 20.0% of W. P.20.0% of W. P.



Table 2: Comparing Spit Tobacco Use in Table 2: Comparing Spit Tobacco Use in Wyoming and the Neighboring StatesWyoming and the Neighboring States

StatesStates FemaleFemale MaleMale TotalTotal

WyomingWyoming 5.0%5.0% 21.1%21.1% 13.3%13.3%

IdahoIdaho 2.0%2.0% 9.0%9.0% 5.7%5.7%

MontanaMontana 5.0%5.0% 20.0%20.0% 13.2%13.2%

NebraskaNebraska 2.8%2.8% 17.0%17.0% 10.1%10.1%

S DakotaS Dakota 6.7%6.7% 23.5%23.5% 15.3%15.3%

UtahUtah 1.2%1.2% 4.9%4.9% 3.1%3.1%

US MedianUS Median 1.7%1.7% 12.8%12.8% 7.2%7.2%

Source: YRBS, 2003.

Why do we need to worry?Why do we need to worry?

Some FactsSome Facts

World: Annual Tobacco deaths (in millions)World: Annual Tobacco deaths (in millions)

20002000 20302030

DevelopedDeveloped 22 ~3~3DevelopingDeveloping ~2~2 ~7~7World TotalWorld Total 4 4 ~10 ~10

1 in 2 long-term smokers killed by their 1 in 2 long-term smokers killed by their addictionaddiction

1/2 of deaths in middle age (35-69)1/2 of deaths in middle age (35-69) Source: World Bank (2002)Source: World Bank (2002)

Tobacco deaths are on the increase: Tobacco deaths are on the increase: Case of IndiaCase of India

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1985 1990 1995 2000 2005 2010 2015 2020Year

To

ba

cc

o d

ea

ths

(in

mil

lio

n)

Estimates by WHO 1996, 1999Estimates by Gupta 1989Estimates by ICMR 1985

Table 3: Estimating Economic CostTable 3: Estimating Economic Cost

Source: Source: National Center for Tobacco-Free Kids, June 14, 2004, www.tobaccofreekids.org / 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 The Benefits of Investing in Tobacco Preventionin 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%



ConclusionConclusion

Excise taxes levied on tobacco products Excise taxes levied on tobacco products typically reflect policymakers’ desire to typically reflect policymakers’ desire to balance improved health with increases in balance improved health with increases in revenue. revenue.

Tax policy aimed at containing tobacco Tax policy aimed at containing tobacco consumption (deterrence) and at increasing consumption (deterrence) and at increasing revenue can successfully achieve both revenue can successfully achieve both objectives. objectives.

Any Question?

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