KENTUCKY YOUTH ADVOCATES - Press Release

For Immediate Release

December 19, 2008

Contact:

Brigitte Blom Ramsey

Office: 502-895-8167 x114

Cell: 859-654-8902

Terry Brooks

Office: 502-895-8167 x113

Cell: 502-235-2396

Analysis: Cigarette Tax Must Increase By 70 Cents to Be Effective

A 25 Percent Increase Would Offset Smoking-Related Costs and Improve Health Outcomes In Kentucky

Louisville, KY – As Kentucky’s budget crisis deepens, a wide range of groups are voicing their support for Governor Beshear’s proposed 70-cent increase to the cigarette excise tax, effectively raising it to $1 per pack.  A new analysis, The Right Tobacco Tax Rate: Balancing Efficiency and Equity by Kentucky Youth Advocates finds that Kentucky needs to raise the cigarette tax significantly to offset smoking-related social costs and discourage smoking.  The current tax rate does neither.  Further, an increase of less than 70 cents would merely produce revenues, doing little to decrease smoking and smoking-related costs.

“Taxpayers throughout Kentucky need to get smart and realize that we are the ones paying for the negative health consequences of Kentuckians who choose to smoke,” says Terry Brooks, executive director of Kentucky Youth Advocates. “While only 29 percent of Kentuckians smoke, 100 percent of us pay the price for it.” 

The cost Kentucky pays for having the highest percentage of adult smokers in the nation amounts to more than $4.1 billion in smoking-related Medicaid expenditures, higher private medical insurance premiums, and lost productivity.  Smoking-related Medicaid expenditures alone cost Kentucky households an estimated $599 annually. 

The analysis argues that in order for the cigarette tax to be efficient, it should be high enough to 1) cover smoking-related costs, and 2) decrease demand for cigarettes.  Research shows that it takes a steep and sudden price increase of 25 percent or more to have a meaningful impact on the demand for cigarettes.   Trend data shows that as cigarette prices increased in the late 1990’s youth smoking, in particular, dropped significantly. 

“With a significant price increase we can expect to see demand for cigarettes decrease most among youth and pregnant women,” says Brigitte Blom Ramsey.  “Youth who don’t ever start smoking are much less likely to be smokers as adults.  This is where we see the real long-term savings.”

While some argue that the tax is regressive, or harder on low-income people, the report contends that this can be a short-run effect if the price increase is high enough to cause low-income smokers to quit smoking altogether or never start in the first place.

 “If the price shock associated with the tax increase helps people quit, they are better off in the long run,” says Ramsey.

“We believe the read leadership challenge on this issue is to pass a cigarette tax at the 70 cent level,” says Brooks. “Doing less is the easy political move but it will neither make a dent in the current budget crisis nor offer a catalyst to improve Kentucky’s health in the long-term.”

A full copy of the issue brief The Right Tobacco Tax Rate: Balancing Efficiency and Equity can be found on Kentucky Youth Advocates’ website at http://www.kyyouth.org.