PACT Recommendation: Tax non-cigarette tobacco products, including cigars, at a rate of 40% of their wholesale price in order to prevent youth from initiating or switching use due to an uneven tax regime.
Tobacco taxes are one of the most intuitive approaches to tobacco control—higher prices induce consumers to reduce their use of tobacco products, and have the added benefit of providing government with a stable source of long-term revenue. According to the CDC, “Increasing the price of tobacco products is the single most effective way to reduce consumption.”[i] Research suggests that a 10 percent hike in the cost of cigarettes leads to a three to five percent decrease in consumption, and that youth are particularly sensitive to price increases, decreasing their consumption by two to three times as much as adults do in response to the same price jump. [ii]
Pennsylvania has developed the following tax structure for its tobacco products:
|Tax Rate||$2.60 per pack||40% of wholesale||55¢/oz.||None|
|Adjusted to Inflation||No||Yes||No||N/A|
|Date||Aug. 2016||Oct. 2016||Oct. 2016||Never|
|*Model Tax Structure|
Cigars: A Missed Opportunity
However, Pennsylvania missed an opportunity to fully protect residents from the health harms of tobacco by introducing the tax as a weight-based tax on smokeless and roll-your-own tobacco, and by not taxing cigars. Pennsylvania remains one of only two states that do not tax cigars. The failure to tax cigars creates a disparity in prices between cigars and other tobacco products, even though cigars are no less harmful than any other tobacco product.[i] Artificially low cigar prices may encourage youth and other Pennsylvanians to switch to using cigars in lieu of other tobacco products. Furthermore, low cigar prices make it easier for youth to initiate tobacco use. An even tax structure is critical to preventing youth tobacco use, in part because so many youth are able to purchase tobacco in spite of age restrictions: according to the Youth Tobacco Survey, less than half of high school students who purchased tobacco in the past 30 days were asked for proof of age, and less than one-third were denied the sale.[ii]
An Uneven Tax Structure
The weight-based tax on loose and smokeless tobacco also creates an uneven tax structure on tobacco products in Pennsylvania. Low-weight products, especially new ultra-light products such as moist snuff, are marginally taxed under a weight-based system, creating price distortions that encourage consumption of low-weight tobacco products. As more consumers shift toward consuming low-weight products, this robs the state of tax revenue. Additionally, because weight-based taxes are not tied to wholesale prices, they do not adjust to inflation over time, further limiting tax incomes to the state while reducing the real cost of tobacco products over time.
E-Cigarettes: An Effective Tax
Alternatively, the state’s new tax on e-cigarettes is effectively designed to respond to inflationary changes in product pricing over time, thereby consistently protecting future consumers from the harms of tobacco use. This taxation model also ensures consistent state revenues over time.
The American Lung Association supports taxing all non-cigarette forms of tobacco at 40 percent of their wholesale price—this creates tax parity between cigarettes and other tobacco products, and properly includes cigars as a taxed tobacco product. This would create an even tax structure, which is the simplest and most effective way to protect our youth from the health harms of tobacco. Such a tax system would increase in accordance with inflation, assuring the state consistent revenues.
[ii] Centers for Disease Control and Prevention (CDC). Economic Trends in Tobacco. Available https://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/econ_facts/
[iii] Centers for Disease Control and Prevention (CDC). Smoking & Tobacco Use: Cigars. Available https://www.cdc.gov/tobacco/data_statistics/fact_sheets/tobacco_industry/cigars/
[iv] Pennsylvania Department of Health, Division of Tobacco Control and Prevention. Executive Summary: Youth Tobacco Survey 2010/2011. Available http://www.statistics.health.pa.gov/HealthStatistics/BehavioralStatistics/TobaccoStatistics/Documents/ExecSumm_YTS2010pdf.pdf