Tobacco Tax/Price Policies and Smoking Behavior Andrew Hyland, PhD Roswell Park Cancer Institute February 2, 2011 [email protected]

Tobacco Tax/Price Policies and Smoking

Behavior

Andrew Hyland, PhDRoswell Park Cancer Institute

February 2, 2011

[email protected]

Underlying Premise

• Availability of low price tobacco products is bad for public health

• Smokers who would have quit otherwise continue to smoke when low price options are accessible

• Cheap tobacco = more cancer, more heart disease, more emphysema

Compensatory Model of Price Effects

Tax/Price Increase

Quitting

Switch to discount brands

Switch to cheaper sources (e.g., Internet, Indian reservations, “Freddy’s van”)

More efficient smoking (e.g., smoking more of the cig, deeper breaths, less time out of mouth)

Reduction in consumption

Reduction in prevalence

No effect

Cutting back

More efficient purchases (cartons vs. packs; greater use of promotions)

Tobacco Industry Efforts to Lower Price (e.g., promotions, price cuts)

http://www.cigoutlet.net/

LET’S LOOK AT SOME DATA

• What happens when states and the federal government raise tobacco taxes???• 20+ US states increased rates since 2009• New York case study• US Federal excise tax increase, April 2009

Prevalence of purchasing from low/untaxed source by country

Prevalence of using discount/generic cigarettes or RYO tobacco by country

2009 ITC Pack Collection Study 2009 data…9% no tax stamp, 36% tax stamp

from different state - $0.81 increase 2010 data….8% no tax stamp, 21% tax stamp

from different state – same price as 2009

Legitimate State Tax Stamp

Non-State Stamp

No Tax StampIllegible Tax

Stamp

2009 Study Results: Proportion of Legitimate

State Tax Stamps (from the 2009 Supplemental ITC Survey)

1/1

7/12

15/19

22/33 9/13

9/11

2/3

2/21/1

4/4

3/5

2/8 1/2

0

6/7

2/2

0/1

0

1/2

2/6

4/4

3/3

2/4

5/7

4/9

6/10 9/11

3/5

10/18

3/17

5/9

11/16

3/5 4/7 4/50/6

0/11

10/133/3

0

0 2/2

4/55/6

1/14/11

0

0

Note: Tax stamps are not used in states:North CarolinaNorth Dakota

South Carolina

In New York, only 18% of cigarette packs were

stamped with a legitimate tax stamp from each state

2009 ITC Pack Collection Study

Hard to tell what impact Federal excise tax increase has had just yet…

Average price paid per pack increased by $0.81 cents from $3.74 to $4.55

Quit attempt rates increased from 30% to 36% but comparable to Canadian smoker change

CPD reduced from 20 to 18 At both surveys, 29% reported purchasing

cigarettes at a discount or low/untaxed venue

12

A B C A: CounterfeitB: AuthenticC: Counterfeit

B C

Filter lengthdifference

Examining Products

Trace elements

Federal tax impact on consumption

Federal tax impact on prices

BUT…double digit growth for smokeless

Case Study: New York

New York State Cigarette Excise Tax,

1992-2010

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

100

200

300

400

500

Year

Ex

cis

e T

ax

(C

en

ts)

Source: New York State Department of Taxation and Finance, 2008.

Percentage of New York Smokers who Purchased from Various Retail Sources, NYATS 2004.

*Includes Indian reservations, out-of-state sources, the Internet, toll-free numbers, and duty-free shops.Source: New York State Department of Health, Cigarette Purchasing Patterns among New York Smokers: Implications for Health, Price, and Revenue, March 2006.

Convenience Store/ Gas Station

Low or Untaxed Sources*

Grocery Store/ Pharmacy

Discount Store Bar/ Enter-tainment Complex

0

20

40

60

80

100

76

57 54

28

13

59

37 37

18

6

Purchased at Least Once in Past Year

Purchased "All the Time" or " Sometimes"

Pe

rce

nt

(%)

Percentage of New York Smokers who Purchased from Low-Tax or Untaxed Sources, NYATS 2004.

Source: New York State Department of Health, Cigarette Purchasing Patterns among New York Smokers: Implications for Health, Price, and Revenue, March 2006.

Any Location Indian Reserva-tion

Out-of-State Internet Toll-Free Number

Duty-Free Shop0

20

40

60

80

100

57

32 31

9 614

37

25

13

6 4 6

Purchased at Least Once in Past Year

Purchased "All the Time" or " Sometimes"

Per

cen

t (%

)

Average Price Per Pack of Cigarettes Among Smokers who Frequently Purchase from Indian Reservations and

Convenience Stores, NYATS 2004.


Always Purchase from Indian Reservations

Always Purchase from Con-venience Stores

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$ 3.09

$ 5.88

$ 2.38

$ 4.52

New York CityRemainder of New York State

Pri

ce

Pe

r P

ac

k (

US

$)

Its like a 2 for 1 promotion!!!

87% of New Yorkers’ Resided within 55 miles of a Lower/Untaxed

Cigarette Source in November 2003!

Proximity and Price Differentials Make the Difference


56+ Miles to Reservation

31-55 Miles to Reservation

0-30 Miles to Reservation

0 10 20 30 40 50 60 70

15

30

64

Percent (%)

Percent of Western New York Smokers who Purchase Cigarettes on Indian Reservations

“All the Time”, 2005-20010

2005 2006 2007 2008 20100

20

40

60

80

100

5159 59

65 64

Pe

rce

nt

(%)

Source: Western New York Adult Tobacco Use Survey, 2005-2008. Erie-Niagara Tobacco Use Survey, 2010.

Those Who Buy Cheap Cigarettes Are Less Likely to Quit Smoking

Behavior % using at baseline

Impact on Cessation at follow-upOdds Ratio (95% CI)

Did not use low/untaxed sourceUse Low/untaxed Source

90.7%9.3%

1.000.69 (0.45-1.00)

Used Premium BrandUsed Discount BrandUsed RYO Tobacco

48.7%34.9%16.5%

1.000.86 (0.69-1.07)0.76 (0.57-1.02)

Purchased pack/loose cigarettePurchase by the carton

69.7%30.3%

1.000.67 (0.52-0.87)

Did not use any behaviorsUsed 1 behavior Used 2 or more behaviors

34.8%48.1%17.2%

1.000.75 (0.61-0.93)0.59 (0.42-0.81)

Full models are also adjusted for Country, Age, Sex, Cigarettes Per Day, Minority Status, and HSI

What is New York State’s Annual Revenue Loss from Low Taxed and Untaxed Cigarettes?

Lost revenue if purchased 30% of cigarettes from untaxed sources0

100

200

300

400

500

600

80

114

292

Other States Internet or Phone Order Indian Reservations

Lo

st

Sta

te T

ax

es

($

mill

ion

)

$486 Million

Estimated Lost Revenue in New York State in 2004 from Tax Avoidance.


Indian Reservations

Internet / Phone

Other States

How Much Goes Uncollected in 2010?

No published data

However, its certainly increased since the tax went up from $2.75 per pack to $4.35 per pack

Its several hundreds of millions of dollars each year in New York State.

So What is the Impact of State and Federal Tax Increases?

Prices increase Reduce consumption Promote smokeless use Consumers change their purchase patterns

How depends on proximity and savings to be had Indian Reservations provide the majority of

product in WNY Tax avoidance decreases cessation

Diminishes taxes public health benefit Hundreds of millions of dollars in tax revenue

goes uncollected each year in NY alone

What Tobacco Price Policies Have Happened Recently?

• PACT Law– June 2010, requires all taxes paid before delivery

• Pay all applicable federal, state, local or Tribal tobacco taxes and affix any related tax stamps, before delivering any cigarettes or smokeless tobacco products to any customer in a state;

• Comply with various state and local laws as if the Internet sellers were tobacco product retailers located in the same state as their customers;

• Register with the state and make periodic reports to state tax collection officials; and

• Check the age and ID of customers both at purchase and at delivery to stop Internet cigarette and smokeless tobacco sales to kids.

PACT Law

Law enforcement says stopping mail order cigarette sales to have huge impact on smuggling

Little empirical data…yet

Anecdotally…online cigarette vendors expect an impact and some have closed

Hypothesized to reduce price differentials, boost cessation

WNY smoke shops disproportionately impacted

Fall 2009 (n=320) Fall 2010 (n=366)0

20

40

60

80

52.5 52.2

7.5 7.51.9 1.1

From what type of outlet was the cigarette pack that you are sending to us purchased?

Convenience Stores Indian Reservations Internet

Tax and Purchase Location – ITC Data from 2009 & 2010 US Pack Collection Studies

Internet sales drop from 1.9% to 1.1% but not statistically significant

PACT Law – Some unanswered questions

- How much of an impact will it have?- Is the impact larger in

WNY?- How will WNY Indian

Reservations adapt?- How will it be enforced?- Will it impact organized

smuggling?- Will it impact youth

initiation?

Tax / Price Summary

• Higher prices perhaps the most effective tobacco control strategy available to us

• Higher taxes commonly used at the state at national level

• Biggest threat to the impact of tax policy is ‘leakage’• ‘Leakage’ due to differential prices for

readily available product alternatives• Most effective tax policy creates uniformly

high prices

Documents

Tobacco Tax/Price Policies and Smoking Behavior Andrew Hyland, PhD Roswell Park Cancer Institute February 2, 2011 [email protected]