New Report Finds Tobacco Industry Exaggerates Extent of Illicit Tobacco Trade and Proven Strategies Exist to Prevent It

Statement of Matthew L. Myers, President, Campaign for Tobacco-Free Kids
February 19, 2015

WASHINGTON, DC – The tobacco industry’s favorite argument against tobacco tax increases and other policies to reduce tobacco use is that such measures will cause an increase in the illicit tobacco market. But a new report issued today by the National Research Council and the Institute of Medicine finds that the industry’s claims regarding the illicit market are “inflated” and that federal and state governments have effective tools to address the problem.

As today’s report finds, “From a purely economic standpoint, taxes that raise the price of cigarettes are socially desirable in that they discourage smoking while at the same time generating government revenues” (p. 1-6).

There is no need to speculate. Despite any illicit trade that occurs, the evidence is crystal clear that higher tobacco taxes are highly effective both at reducing smoking and other tobacco use and raising revenue. Based on actual experience, every state that has significantly increased its cigarette tax has received more revenue than it would have otherwise collected – despite the lost sales from related smoking declines and despite any increases in illicit trade. In a recent example, Minnesota in 2013 increased its cigarette tax by $1.60 per pack. Despite the tobacco industry’s predictions of doom and gloom, Minnesota’s cigarette tax revenues increased by more than 50 percent, while neighboring states saw little or no growth in revenue.

Economic research shows that every 10 percent increase in the price of cigarettes reduces youth smoking by about seven percent and overall cigarette consumption by three to five percent. By increasing tobacco taxes, governments at all levels can prevent kids from smoking, prompt smokers to quit, save lives and save huge sums in tobacco-related health care costs, which total about $170 billion each year in the United States.

This report sends a powerful message to governments at all levels: They should move forward with increasing tobacco taxes and implementing other measures to reduce tobacco use, with confidence that such policies are effective and that they have the tools to minimize any illicit trade that might result.

The report finds that strategies adopted by several states and countries to reduce the size of the illicit tobacco market have been effective. California and Massachusetts, for example, require use of digital tax stamps. Spain, the United Kingdom and Canada have significantly reduced illicit trade through strategies such as licensing and control measures, stamping and marking requirements on cigarettes, and stronger enforcement. The Campaign for Tobacco-Free Kids has joined the New York City Department of Health and Mental Hygiene and other public health groups in calling on the Food and Drug Administration to implement a “track and trace” system to combat the illicit market, a tool that today’s report found would add to the effectiveness of individual state efforts.

Today’s report also provides powerful support for the FDA to move forward with issuing the first-ever product standards governing how tobacco products are made, as it is authorized to do by a landmark 2009 law. Leading public health groups have called on the FDA to issue product standards to reduce the toxicity, addictiveness and/or appeal of cigarettes and other tobacco products in light of the conclusions of the 2014 Surgeon General’s report that cigarettes today are more deadly than 50 years ago and the FDA’s conclusion that the use of menthol in cigarettes increases youth cigarette use. Among its recommendations to accelerate progress in reducing smoking, the Surgeon General’s report called for “effective implementation of FDA’s authority for tobacco product regulation in order to reduce tobacco product addictiveness and harmfulness.”

Today’s report demonstrates that the FDA can issue tobacco product standards without fear of the huge new illicit market predicted by the industry. The report concludes, “Overall, the limited evidence now available suggests that if conventional cigarettes are modified by regulation, the demand for illicit versions of them is likely to be modest” (Summary, p. 7).

While calling for additional efforts to address the illicit trade market, the report finds that “industry-sponsored estimates of the size of the illicit market tend to be inflated. More generally, concerns have been raised about the quality and transparency of industry-funded research on the illicit tobacco trade” (p. 1-9 and 1-10).

Despite enormous progress in reducing smoking, tobacco use is still the number one cause of preventable death in the United States, killing more than 480,000 people each year. Without urgent action now, 5.6 million kids alive today will die prematurely from tobacco-related disease. It is critical that governments at all levels step up efforts to address this huge public health epidemic. They should not be deterred from doing so by the entirely solvable issue of illicit trade and the tobacco industry’s exaggerations of it.