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Six Lessons from the U.S. Experience with Tobacco Taxes Jason Furman Chairman, Council of Economic Advisers World Bank Group Conference: “Winning the Tax Wars: Global Solutions for Developing Countries” May 24, 2016 Lesson #1: Smoking Plays a Major Role Not Just in Mortality But in Inequality of Mortality Percent that Ever Smoked by Poverty Status, 1991-2014 Age 50+ Percent 70 60 Ages 18-40 Percent 70 Above Poverty Line 60 50 Below Poverty Line 50 Below Poverty 40 40 Above Poverty Line 30 1989 1994 1999 2004 2009 Source: NHIS and CEA calculations following Currie and Schwandt (2016). 2014 30 1989 1994 1999 2004 2009 2014 1 Lesson #2: Price Plays an Important Role in Smoking U.S. Cigarette Prices and Consumption, 1954-2014 Price per Pack, 2014 Dollars 7 Thousands of Cigarettes per Capita 3 6 2 Per Capita Cigarette Consumption (Left Axis) 5 4 Average Price per Pack (Right Axis) 3 1 2 1 0 1954 1964 1974 Source: Orzechowski and Walker (2015); Bureau of Labor Statistics; CEA calculations. 1984 1994 2004 0 2014 2 Lesson #3: Cigarette Taxes Play an Important Role in Cigarette Prices Average U.S. Cigarette Taxes and Prices, 1954-2014 Tax per Pack, 2014 Dollars 3.50 Price per Pack, 2014 Dollars 7 6 3.00 Cigarette Tax Rates per Pack (Left Axis) 2.50 State Federal 2.00 Average Price per Pack (Right Axis) 5 4 1.50 3 1.00 2 0.50 1 0.00 0 1954 1964 1974 Source: Orzechowski and Walker (2015); Bureau of Labor Statistics; CEA calculations. 1984 1994 2004 2014 3 Lesson #4: Cigarette Taxes Have Large Aggregate Benefits for Public Health Changes in Smoking Behavior Due to 2009 Tax Increase Percent Change 0 -3 -6 -9 Age Group -12 12-17 18-25 -15 -18 Source: van Hasselt at al. (2015). Smoking initiation Past-month Days smoked Cigarettes Cigarettes smoking in 30 days per day (daily per day (current smokers) (nondaily smokers) smokers) 4 Lesson #5: Tobacco Taxes Disproportionately Benefit Lower-Income Households Illustrative Distribution of the 2009 Tobacco Tax Increase Benefits as Percent of Pre-Tax Income 1.5 Tax Tax + Health Tax + Health + Utility Offset 1.0 Tax + Health + Utility Offset + CHIP 0.5 0.0 -0.5 Source: CEA calculations. Lowest quintile Second quintile Middle quintile Fourth quintile Top quintile 5 Lesson #6: It is Really Important to Tax Similar Tobacco Products at Similar Rates Sales of Roll-Your-Own and Pipe Tobacco, 2002-2016 Pounds of tobacco (thousands per month) 5 Tobacco Tax Increase (April 2009) 4 3 2 Roll-Your-Own Tobacco 1 0 2002 Pipe Tobacco 2004 2006 Source: Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau. 2008 2010 2012 2014 2016 6 Six Lessons from the U.S. Experience with Tobacco Taxes Jason Furman Chairman, Council of Economic Advisers World Bank Group Conference: “Winning the Tax Wars: Global Solutions for Developing Countries” May 24, 2016