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Wyoming Tobacco Tax and Revenue. Prepared by the Wyoming Survey & Analysis Center Tobacco Prevention & Control Evaluation Group For further information email: WYSAC@uwyo.edu. Why Economists are Infamous?. They make too many assumptions They never conclude

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wyoming tobacco tax and revenue

Wyoming Tobacco Tax and Revenue

Prepared by the

Wyoming Survey & Analysis Center

Tobacco Prevention & Control Evaluation Group

For further information email: WYSAC@uwyo.edu

why economists are infamous
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
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
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
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
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)

the tobacco master settlement agreement of 1998 was viewed as a landmark public health victory
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, 2004. Available at http://tobaccofreekids.org/Script/DisplayPressRelease.php3?Display=708.

wyoming tobacco excise tax rates and attitudes
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 2003. 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
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
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 2004.
  • 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 increasein 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 trend1
Consumption and Revenue Trend
  • Simple arithmetic post-tax average (12 months: July’03-April’05) consumption was reduced by 17.40 % 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 212.55% 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 4 comparisons of pre and post tobacco tax average monthly sales
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
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
Table 1: Comparing Other Tobacco Tax Rates in WY and the Neighboring States

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.

table 2 comparing spit tobacco use in wyoming and the neighboring states
Table 2: Comparing Spit Tobacco Use in Wyoming and the Neighboring States

Source: YRBS, 2003.

some facts
Some Facts

World: Annual Tobacco deaths (in millions)

2000 2030

Developed2~3

Developing~2~7

World Total 4 ~10

  • 1 in 2 long-term smokers killed by their addiction
  • 1/2 of deaths in middle age (35-69)
  • Source: World Bank (2002)
table 3 estimating economic cost
Table 3: Estimating Economic Cost

Source:Source: National Center for Tobacco-Free Kids, June 14, 2004, www.tobaccofreekids.org / Eric Lindblom.

the benefits of investing in tobacco prevention
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, 2004. Available at http://tobaccofreekids.org/Script/DisplayPressRelease.php3?Display=708.

conclusion
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.