5/30/11

Taxing TobaccoData Analysis• All packages of

cigarettes are charged a tax by the state, but the rate of the tax varies from state to state.

• This bar graph shows the tax rates for all 50 states and Washington, D.C. (For a full screen version, go to the next slide.)

Source: http://www.tobaccofreekids.org

Taxing Tobacco

Taxing Tobacco

Data Analysis• As the tax rate

increases, so does the price of a package of cigarettes.

• As the price increases, the amount of state revenue increases.

• This scatterplot shows a rough correlation. However, this graph doesn’t take into account the size of the state’s population.

Source: http://www.tobaccofreekids.org

Taxing Tobacco

Data Analysis• This graph takes into

account the state’s population to create the statistic, revenue per smoker.

• This graph much more clearly shows that as the state increases its tax rate, the amount of revenue generated for the state increases.

Source: http://www.tobaccofreekids.org

Taxing Tobacco

Data Analysis• In fact, states have

become so dependent on cigarette taxes that these taxes are making up a larger portion of a state’s budget.

• This graph shows the percentage of the state’s budget that comes from cigarette taxes. (A full-screen version of this graph is on the next slide.)

Source: US Census: http://www.census.gov/compendia/statab/cats/state_local_govt_finances_employment/state_government_finances.html

Taxing Tobacco

Taxing Tobacco

Data Analysis• One of the benefits of

increasing the tax rate is that teen smoking decreases.

• This scatterplot shows a negative correlation between the increasing price of cigarettes and the percentage of teen smokers.

Source: http://www.tobaccofreekids.org

Taxing Tobacco

• There are clear benefits to taxing cigarettes:– Additional state revenue, which can be used to

fund education and other state initiatives.– The rate of teen smoking goes down, and less

smoking means fewer health problems down the road.

Taxing Tobacco

But are there unintended problems to increasing cigarette taxes?Let’s look at some potential issues.

Taxing Tobacco

Issue #1• There is general agreement that smoking is

bad for your health.Therefore, is it ethical for the state to profit

from the poor health habits of some of its citizens?

Taxing Tobacco

Issue #2• While teen smoking goes down as the tax rate

goes up, the same can’t be said for smoking adults. The data suggests that higher taxes leads to an increase in cigarette smoking among some adults.

Taxing Tobacco

Issue #2 (cont)• As the price of

cigarettes go up, there is a corresponding increase to the number packs of cigarettes smoked per person.

• Why would this be?

Source: http://www.tobaccofreekids.org

Taxing Tobacco

Issue #2 (cont)• When the prices of

something goes up, consumers always look to save money. In the case of cigarette smokers, buying a carton of cigarettes effectively lowers the prices of a pack.

• For example, suppose there is a 10% tax increase, but buying a carton saves 10%.

Taxing Tobacco

Issue #2 (cont)• But buying cartons of

cigarettes means that these smokers will buy more packs of cigarettes and will likely smoke more.

• Long-term this may result in higher deaths due to lung cancer.

Taxing Tobacco

Issue #3• Because of the high cost of cigarettes in some

states (in 2011 it costs more than $10 per pack in New York City!), there is a growing, illegal black market for tax-free cigarettes. This results in higher incidences of:– Theft– Smuggling– Money laundering

Taxing Tobacco

Issue #3 (continued)• The problem of illegal sales of cigarettes

results in:– Lost tax revenue to the state– More state resources devoted to fighting illegal

sales of cigarettes

Taxing Tobacco

Summary• You’ve seen some of the pros and cons of higher taxes on

cigarettes. Now it’s your turn.• Write a letter to your state senator about the topic of taxing

cigarettes. List some of your recommendations for addressing some of the problems that arise from these taxes. Make additional recommendations about managing the additional tax revenue from these taxes.

• BASE ALL OF YOUR RECOMMENDATIONS ON DATA THAT YOU HAVE OBTAINED AND ANALYZED.