Taxing moist snuff by weight ain't worth spit

Article (PDF Available)inTobacco control 16(1):69 · March 2007with24 Reads
DOI: 10.1136/tc.2006.018127 · Source: PubMed
Taxing moist snuff by weight ain’t
worth spit
Moist snuff has been traditionally taxed in US
states using an ad-valorem tax (ie, percentage
of price).
1
There is a movement afoot to change
the taxation of moist snuff, from an ad-
valorem to a weight-based system, and appears
to be primarily promoted by US Smokeless
Tobacco (UST).
23
Effective 1 August 2006,
moist snuff in New Jersey, previously taxed
at 30% of the wholesale price, is now taxed by
weight. The key rationale for the change was to
reduce youth access to these products, on the
basis of the assumptions that cheaper products
are more attractive to youth and market share
of these cheaper (ie, deep-discount) brands has
grown considerably. The new tax, suggested to
raise an additional $2 million in revenue, was
introduced during the state’s struggle to
balance the FY2007 budget.
We showed that the policy is flawed, fiscally
and philosophically. Using ACNielsen data for
New Jersey sales of moist snuff, we estimated
tax revenue on the basis of consumption
patterns using the old and new tax formulas.
The 1.2 ounce comprised 90% of the moist
snuff market and UST dominated, particularly
in the premium product category, which made
up 96% of sales. As the new taxation policy
does increase the excise tax on deep-discount
brands, it reduced tax revenues from premium
products (table 1). A commonly held tenet in
tobacco control is that increases in excise taxes
result in reduced consumption and increased
revenues.
4
However, even if we assume New
Jersey consumption stays static, the new tax
will not only fall short of the projected
additional revenue, but also generate less
revenue than under the previous ad-valorem
tax. Given the dominance of premium products
in the market, consumption of these products
would have to increase to prevent a loss of
revenue.
Although a prime rationale for the taxation
change was to raise the price of cheap snuff,
thus discouraging youth from buying it, most
of the youth who use moist snuff use premium
brands. Indeed, data from the 2004 NSDUH
show that more than two thirds of youth snuff
users reported usual use of premium, not
discount brands, in particular UST’s Skoal
(40.3%), and Copenhagen (23.6%).
5
This mir-
rors cigarette use in youth where premium
products (eg, Marlboro) dominate the market,
whereas discount brands have little market
share.
56
Superficially, it appears that New Jersey’s
change from a relatively low ad-valorem tax to
a high weight-based moist snuff tax would be
beneficial. However, we show that taxing moist
snuff by weight has numerous disadvantages.
It likely will not produce the added income
promised by its supporters. And it protects the
manufacturer from the effect of ad-valorem
taxes on increases via wholesale price or
inflation.
7
Most importantly, the benefits to
tobacco control are suspect; the new system
effectively reduces the price on the premium
brands that most people, including youth, use.
Policymakers and tobacco control advocates
need to carefully consider the effect of these
taxes and not be duped into endorsing what
superficially seems to be a good thing.
C Delnevo, M J Lewis, J Foulds
UMDNJ-School of Public Health, New Jersey, USA
Correspondence to: Assistant Professor C Delnevo,
UMDNJ-School of Public Health; 317 George Street,
Suite 209, New Brunswick, New Jersey 08901, USA;
delnevo@umdnj.edu
doi: 10.1136/tc.2006.018127
References
1 Orzechowski W, Walker RC. The Tax Burden on
Tobacco. Vol 40. Arlington, Va: Orzechowski &
Walker, 2005.
2 America Lung Association. Taxation of Smokeless
Tobacco: Percentage of Price vs. Net Weight. 2001
http://www.tobaccofreekids.org/research/
factsheets/pdf/0175.pdf (accessed August 1,
2006).
3 Campaign for Tobacco-Free Kids. Benefits From
Increasing Smokeless Tobacco Tax Rates. 2006
http://www.tobaccofreekids.org/research/
factsheets/pdf/0180.pdf (accessed August 1,
2006).
4 Jha P, Chaloupka F. The economics of global
tobacco control. BMJ 2000;321:358–61.
5 Substance Abuse and Mental Health Services
Administration, National Survey on Drug Use and
Health, 2004 [Computer file]. ICPSR04373-v1.
http://webapp.icpsr.umich.edu/cocoon/
SAMHDA-STUDY/04373.xml (accessed August 1,
2006).
6 Centers for Disease Control and Prevention. Youth
tobacco surveillance—United States, 2001–2002.
Morbidity & Mortality Weekly Report. Surveillance
Summaries 2006;55(3):1–56.
7 Chaloupka FJ, Hu TW, Warner KE, et al. The
taxation of tobacco products. In: Jha P,
Chaloupka FJ, eds. Tobacco control in developing
countries. Oxford: Oxford University Press, 2000.
Exploring the seasonality of
cigarette-smoking behaviour
Seasonality has become a factor in
the once-stable tobacco industry
with so many indoor smoking bans
right across the country; smokers have
more chance to smoke in the warm-
weather months.—John Barnett, CEO
of Rothmans Inc
Seasonality has been shown to influence
cigarette sales during certain times of the
year.
1–3
Although seasonality is a relevant issue
to tobacco control, little research has explored
factors that contribute to seasonality.
134
Some
of the proposed reasons for seasonal effects
include tax increases, weather conditions and
timing of quitting efforts (eg, New Year’s
resolutions).
1–3
Thus, we further examined
factors believed to contribute to the effect of
seasonality on cigarette consumption.
Monthly cigarette sales were obtained from
the New Jersey Department of Revenue for
fiscal years 1999–2006, and data on monthly
weather patterns were obtained from the office
of the New Jersey State Climatologist for the
same period. We conducted a stepwise multi-
linear regression to examine the effect of
average monthly temperature, number of days
per month with temperatures below freezing,
number of days in the month and tax rates on
monthly cigarette sales.
Consistent with previous research,
1
we found
that in New Jersey, during the time period
examined, February had the lowest average
monthly cigarette sales (240 million),
5
whereas
June had the highest average monthly cigarette
sales (329 million).
5
It is important to note that
New Jersey raised the state cigarette excise tax
Table 1 Sales of 1.2 oz cans of moist snuff sold in New Jersey during FY2005 by
brand and estimated tax revenue by ad-valorem and weight
Unit sold
Market
share (%)
Average
wholesale
price*
Estimated tax
revenue at 30%
wholesale
Estimated tax
revenue at $0.75
per oz.
Premium
Skoal 1330 414 58.70 $3.17 $1 265 224 $1 197 373
Copenhagen 480 868 21.20 $3.17 $457 305 $432 781
Kodiak 345 601 15.30 $3.14 $325 556 $311 041
Hawken 26 013 1.10 $3.18 $24 816 $23 412
Value
Timber wolf 32 056 1.40 $1.61 $15 483 $28 850
Cougar 15 0.00 $2.08 $9 $14
Deep discount
Grizzly 40 120 1.80 $1.17 $14082 $36 108
Kayak 139 0.00 $0.81 $34 $125
Longhorn 7406 0.30 $0.87 $1933 $6665
Husky 3052 0.10 $1.2 $1099 $2747
Total $2 105 542 $2 039 116
*Averaged over 4 wholesale distributors.
UST product.
Source: ACNielsen Market Scanner Data.
LETTERS
PostScript
..................................................................................................
Competing interests: None declared.
Tobacco Control 2007;16:6971 69
www.tobaccocontrol.com
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