Federal Tobacco Tax Hike Would Reduce Smoking, Raise Revenue and Benefit Lower-Income Americans, New Report Finds

FOR IMMEDIATE RELEASE: June 19, 2013
CONTACT: Peter Hamm, 202-296-5469

Federal Tobacco Tax Hike Would Reduce Smoking, Raise Revenue and Benefit Lower-Income Americans, New Report Finds

Statement of Matthew L. Myers, President, Campaign for Tobacco-Free Kids

WASHINGTON, DC – A report issued today by the Center on Budget and Policy Priorities provides important new support for increasing the federal tobacco tax, finding it would be both highly effective in reducing smoking and a reliable and predictable source of revenue to fund early childhood education initiatives proposed by President Obama. The report also finds that the tobacco tax increase would deliver the greatest benefits to lower-income people, including health benefits from reductions in smoking and educational benefits from expanding early childhood education. These conclusions refute tobacco industry claims that a tobacco tax increase is not a reliable source of revenue and would hurt lower-income people.

The combined policy of a tobacco tax increase and expansion of early childhood education “is designed to benefit people both at the ‘front end,’ by expanding opportunity, and at the ‘back end,’ by improving health and extending lives,” the report concludes.

This report demonstrates that the President’s proposal to increase the federal cigarette tax by 94 cents per pack to fund early childhood education would be a “win-win” for our nation’s children, improving their health and education. The proposal also calls for increasing taxes on other tobacco products. The tobacco tax increases would raise $78.1 billion over 10 years, according to the Office of Management and Budget.

The new report found the tobacco tax increase would:

• Be an effective way to reduce smoking: “Tobacco taxes are a proven strategy to reducing smoking, particularly among teenagers and low-income people. Given the high health costs of tobacco use, reducing smoking rates would lead to substantial health gains.”

• Be a reliable and predictable source of revenue: The report finds that the higher tobacco tax would raise the revenue needed to fund early childhood education, even while reducing smoking. “The President’s proposal takes into account this positive behavioral response and assumes that revenue falls at the end of the ten-year budget window. Even so, the estimated revenue is sufficient to pay for the proposal over ten years.”

• Deliver significant health benefits to lower-income people. “The health benefits of a higher tobacco tax are progressive. Because low-income people are more sensitive to changes in tobacco prices, they will be more likely than high-income people to smoke less, quit, or never start in response to a tax increase.” The report also concludes, “Expanding early childhood education – in particular for low- and moderate-income children – as the President has proposed is a very progressive use of the revenue from raising the tobacco tax.”

Study after study has shown that increasing the tobacco tax is one of the most effective ways to reduce smoking and other tobacco use, especially among kids. Even tobacco companies admit in their own documents that tobacco tax increases reduce youth smoking, which is why they vehemently oppose them. Economic research has found that every 10 percent increase in the price of cigarettes reduces youth smoking by six or seven percent and overall cigarette consumption by three to five percent.

The health and economic benefits of a federal tobacco tax increase were confirmed in a 2012 report by the Congressional Budget Office. The CBO found that a 50-cent increase in the federal tobacco tax would raise substantial new revenue while prompting nearly 1.4 million adult smokers to quit by 2021, saving tens of thousands of lives and reducing health care costs, including for the Medicaid program. Based on the CBO’s statement that a $1 tax increase would roughly double those benefits, we estimate that a 94-cent cigarette tax increase would prompt 2.6 million adult smokers to quit and save 18,000 lives by 2021.

In addition to these gains from helping current smokers quit, the Campaign for Tobacco-Free Kids has estimated that a 94-cent increase in the federal cigarette tax would:

• Prevent 1.7 million kids from becoming addicted adult smokers
• Prevent 626,000 premature deaths from these reductions in youth smoking alone
• Save $42 billion in future health care costs from these reductions in youth smoking.

In addition to the many health and revenue benefits, national and state polls have consistently found strong public support for substantial increases in tobacco taxes, with Democrats, Republicans and Independents alike expressing support.

Tobacco use is the number on cause of preventable death in the United States, killing more than 400,000 people and costing $96 billion in health care bills each year. The evidence is clear: The proposed increase in federal tobacco taxes would be both a health win and an economic win for our nation.