1. Tobacco Tax/Price Policies and Smoking Behavior Andrew Hyland, PhD Roswell Park Cancer Institute February 2, 2011 Andrew.hyland@roswellpark.org

2. Underlying Premise Availability of low price tobacco products is bad for public health Smokers who would have quit otherwise continue to smoke when low price options are accessible Cheap tobacco = more cancer, more heart disease, more emphysema

3. Compensatory Model of Price Effects Tax/Price Increase Quitting Switch to discount brands Switch to cheaper sources (e.g., Internet, Indian reservations, “Freddy’s van”) More efficient smoking (e.g., smoking more of the cig, deeper breaths, less time out of mouth) Reduction in consumption Reduction in prevalence No effect Cutting back More efficient purchases (cartons vs. packs; greater use of promotions) Tobacco Industry Efforts to Lower Price (e.g., promotions, price cuts)

6. LET’S LOOK AT SOME DATA What happens when states and the federal government raise tobacco taxes??? 20+ US states increased rates since 2009 New York case study US Federal excise tax increase, April 2009

7. Prevalence of purchasing from low/untaxed source by country

8. Prevalence of using discount/generic cigarettes or RYO tobacco by country

9. 2009 ITC Pack Collection Study 2009 data…9% no tax stamp, 36% tax stamp from different state - $0.81 increase 2009 data…9% no tax stamp, 36% tax stamp from different state - $0.81 increase 2010 data….8% no tax stamp, 21% tax stamp from different state – same price as 2009 2010 data….8% no tax stamp, 21% tax stamp from different state – same price as 2009 Legitimate State Tax Stamp Non-State Stamp No Tax Stamp Illegible Tax Stamp

10. 2009 Study Results: Proportion of Legitimate State Tax Stamps (from the 2009 Supplemental ITC Survey) 1/1 7/12 15/19 22/33 9/13 9/11 2/3 2/2 1/1 4/4 3/5 2/8 1/2 0 6/7 2/2 0/1 0 1/2 2/6 4/4 3/3 2/4 5/7 4/9 6/109/11 3/5 10/18 3/17 5/9 11/16 3/5 4/74/5 0/6 0/11 10/13 3/3 0 0 2/2 4/5 5/6 1/1 4/11 0 0 Note: Tax stamps are not used in states: North Carolina North Dakota South Carolina In New York, only 18% of cigarette packs were stamped with a legitimate tax stamp from each state

11. 2009 ITC Pack Collection Study Hard to tell what impact Federal excise tax increase has had just yet… Hard to tell what impact Federal excise tax increase has had just yet… Average price paid per pack increased by $0.81 cents from $3.74 to $4.55 Average price paid per pack increased by $0.81 cents from $3.74 to $4.55 Quit attempt rates increased from 30% to 36% but comparable to Canadian smoker change Quit attempt rates increased from 30% to 36% but comparable to Canadian smoker change CPD reduced from 20 to 18 CPD reduced from 20 to 18 At both surveys, 29% reported purchasing cigarettes at a discount or low/untaxed venue At both surveys, 29% reported purchasing cigarettes at a discount or low/untaxed venue

12. 12 A B C A: Counterfeit B: Authentic C: Counterfeit B C Filter length difference Examining Products Trace elements

13. Federal tax impact on consumption Federal tax impact on prices

14. BUT…double digit growth for smokeless

15. Case Study: New York

16. New York State Cigarette Excise Tax, 1992-2010 Source: New York State Department of Taxation and Finance, 2008.

17. Percentage of New York Smokers who Purchased from Various Retail Sources, NYATS 2004. *Includes Indian reservations, out-of-state sources, the Internet, toll-free numbers, and duty-free shops. Source: New York State Department of Health, Cigarette Purchasing Patterns among New York Smokers: Implications for Health, Price, and Revenue, March 2006.

18. Percentage of New York Smokers who Purchased from Low-Tax or Untaxed Sources, NYATS 2004. Source: New York State Department of Health, Cigarette Purchasing Patterns among New York Smokers: Implications for Health, Price, and Revenue, March 2006.

19. Average Price Per Pack of Cigarettes Among Smokers who Frequently Purchase from Indian Reservations and Convenience Stores, NYATS 2004. Source: New York State Department of Health, Cigarette Purchasing Patterns among New York Smokers: Implications for Health, Price, and Revenue, March 2006. Its like a 2 for 1 promotion!!!

20. 87% of New Yorkers’ Resided within 55 miles of a Lower/Untaxed Cigarette Source in November 2003!

21. Proximity and Price Differentials Make the Difference Source: New York State Department of Health, Cigarette Purchasing Patterns among New York Smokers: Implications for Health, Price, and Revenue, March 2006.

23. Percent of Western New York Smokers who Purchase Cigarettes on Indian Reservations “All the Time”, 2005-20010 Source: Western New York Adult Tobacco Use Survey, 2005-2008. Erie-Niagara Tobacco Use Survey, 2010.

24. Those Who Buy Cheap Cigarettes Are Less Likely to Quit Smoking Behavior% using at baseline Impact on Cessation at follow-up Odds Ratio (95% CI) Did not use low/untaxed source Use Low/untaxed Source 90.7% 9.3% 1.00 0.69 (0.45-1.00) Used Premium Brand Used Discount Brand Used RYO Tobacco 48.7% 34.9% 16.5% 1.00 0.86 (0.69-1.07) 0.76 (0.57-1.02) Purchased pack/loose cigarette Purchase by the carton 69.7% 30.3% 1.00 0.67 (0.52-0.87) Did not use any behaviors Used 1 behavior Used 2 or more behaviors 34.8% 48.1% 17.2% 1.00 0.75 (0.61-0.93) 0.59 (0.42-0.81) Full models are also adjusted for Country, Age, Sex, Cigarettes Per Day, Minority Status, and HSI

25. What is New York State’s Annual Revenue Loss from Low Taxed and Untaxed Cigarettes?

26. Estimated Lost Revenue in New York State in 2004 from Tax Avoidance. Source: New York State Department of Health, Cigarette Purchasing Patterns among New York Smokers: Implications for Health, Price, and Revenue, March 2006. Indian Reservations Internet / Phone Other States

27. How Much Goes Uncollected in 2010? No published data However, its certainly increased since the tax went up from $2.75 per pack to $4.35 per pack Its several hundreds of millions of dollars each year in New York State.

28. So What is the Impact of State and Federal Tax Increases? Prices increase Reduce consumption Promote smokeless use Consumers change their purchase patterns How depends on proximity and savings to be had Indian Reservations provide the majority of product in WNY Tax avoidance decreases cessation Diminishes taxes public health benefit Hundreds of millions of dollars in tax revenue goes uncollected each year in NY alone

29. What Tobacco Price Policies Have Happened Recently? PACT Law– June 2010, requires all taxes paid before delivery Pay all applicable federal, state, local or Tribal tobacco taxes and affix any related tax stamps, before delivering any cigarettes or smokeless tobacco products to any customer in a state; Comply with various state and local laws as if the Internet sellers were tobacco product retailers located in the same state as their customers; Register with the state and make periodic reports to state tax collection officials; and Check the age and ID of customers both at purchase and at delivery to stop Internet cigarette and smokeless tobacco sales to kids.

30. PACT Law Law enforcement says stopping mail order cigarette sales to have huge impact on smuggling Little empirical data…yet Anecdotally…online cigarette vendors expect an impact and some have closed Hypothesized to reduce price differentials, boost cessation WNY smoke shops disproportionately impacted

31. Tax and Purchase Location – ITC Data from 2009 & 2010 US Pack Collection Studies Internet sales drop from 1.9% to 1.1% but not statistically significant

32. PACT Law – Some unanswered questions - How much of an impact will it have? -Is the impact larger in WNY? -How will WNY Indian Reservations adapt? -How will it be enforced? -Will it impact organized smuggling? -Will it impact youth initiation?

33. Tax / Price Summary Higher prices perhaps the most effective tobacco control strategy available to us Higher taxes commonly used at the state at national level Biggest threat to the impact of tax policy is ‘leakage’ ‘Leakage’ due to differential prices for readily available product alternatives Most effective tax policy creates uniformly high prices