History of Arkansas’ Tobacco Tax
Some two dozen states are considering excise tax increases this year, for budgetary reasons. It is recognized that raising tobacco taxes is good public health policy, leading to reduced consumption, particularly among youth and raising revenue for various programs. Graphs are shown based on the tax experiences in Arkansas from 1955-2001. These graphs demonstrate that increases in excise taxes are significantly lower than increases in the average retail price of cigarettes. A sales tax instead of an excise tax in Arkansas is the best approach because it offers at least two major advantages over excise taxation:

1. The tax increases with every industry price increase (two to three times per year rather than whenever the state legislature changes it.)
2. It is not dependent on the volume of pack sales. Thus, it can be an increasing source of revenue, rather than decreasing as is the excise tax with falling volume of pack sales.

The tobacco industry clearly recognizes the difference between the two taxation forms, as the spit tobacco industry has gone around the nation and changed most states’ policy from sales tax to excise tax. In Arkansas the tobacco industry has been unsuccessful in converting the spit tobacco sales tax to an excise tax.

(Source: Arkansas Department of Finance & Administration, 2002) As the tobacco industry raises the price of cigarettes, cigarette prices have dramatically increased compared with the Arkansas state excise tax. Here we see a decline in the ratio of excise tax to average retail price. The state cigarette excise tax is at its lowest point in history, as a percentage of price. In the past, Arkansas has taxed tobacco as high as 45% of the retail price. Currently the rate is less then 10% of the retail price.

(Source: Arkansas Department of Finance & Administration, 2002) Note how little the excise tax (blue line) has changed over time compared with the average retail price (red line.)

(Source: Campaign for Tobacco Free Kids, December 8, 2002) This graph demonstrates the cigarette excise tax in cents for all 50 states. At $1.51, Massachussetts has the highest cigarette excise tax rate in the country. In the current economic recession, the state’s revenues are not meeting projections. Therefore, budget cuts are planned.

Outcries from those who may lose services because budget cuts place the allocation of master settlement agreement (MSA) dollars (approved at the ballot in November 2000 and in the legislative session in the spring 2001) at risk. In particular, any change in the MSA allocation may place the comprehensive tobacco control program of the state health department at risk. This would be short-sighted as preventing smoking and helping smoking cessation can cut the enormous long-term smoking relating healthcare costs in the state and save lives.

Rather than cut services and/or raid the tobacco settlement plan, thought should be given to raising revenue from a tobacco tax. This tax should be a sales tax, which requires a simple majority. A simple majority is less than the 75% legislative majority required to raise tobacco excise taxes and less than the 66% legislative majority required to change the ballot initiative that allocated the MSA dollars in November 2000.

The Plan
The Coalition for a Tobacco Free Arkansas is in support of a 30 percent sales tax increase on tobacco products. Our current focus is to rally support for an increase in Arkansas' sales tax on tobacco products from its current excise tax rate of 34 cents per pack to an amount closer to the national average of 62 cents per pack (Source: Campaign for Tobacco Free Kids, December 8, 2002.)

This graph demonstrates the trend in revenue if an additional 30% sales tax (red line) were added to the excise tax (blue line) over the last 46 years. Today, a 30% sales tax on top of the current excise tax would generate over $200 million in additional revenue. Currently, we generate $76 million in tobacco tax revenue. However, the state turns around and spends $189 million in Medicaid costs directly related to tobacco illness. This means the tax revenue produced from tobacco products does not come close to covering what taxpayers pay out of their pocket to treat tobacco disease and death.

1. In Dollars a 30% Tobacco Sales Tax Increase Will:
   Raise $229.2 million in new revenues each year
   Save $9.3 million each year due to fewer smoking-caused heart attacks and strokes
   Save $704.9 million in long-term health care cost
   (Source: Campaign for Tobacco-Free Kids, January 2003)
   
2. In Lives a 30% Tobacco Sales Tax Increase Will:
   Reduce adult smokers by 12%
   Reduce youth smoking by 21% (39,700 fewer youth smokers)
   Save 12,700 Arkansas youth from death
   Save 6,000 Arkansas adults from death
   Reduce packs smoked by 31%
   (Source: Campaign for Tobacco-Free Kids, January 2003)

Myths and Realities
Experience in other states shows that an increase would keep teens from starting to smoke, encourage adult smokers to quit, decrease health care costs and raise revenue.

Those opposing such a move will undoubtedly hide behind a laundry list of excuses, so we have outlined some typical reasons people give for not supporting our efforts. At first glance, some of these excuses may appear to have merit, but look further to learn the truth.

With Arkansas’ current tobacco excise tax rate of 34-cents, a 30 percent sales tax increase would bring our tobacco tax more in line with current cigarette costs, and in line with the national average of state cigarette taxes of 62 cents.

Myth: Arkansas' current 34-cents per pack tobacco excise tax is already high enough.
Reality: No, it isn't. When compared to other states, Arkansas’s tobacco tax ranks 32nd (1 = high). (Source: Campaign for Tobacco Free Kids, December 8, 2002)

Myth: Arkansas doesn't have a problem with teen tobacco use.
Reality: Unfortunately, we do have a serious problem. In fact, we have one of the highest rates of teen tobacco use in the country. Studies show 43.8 percent of Arkansas high school students and 22.4 percent of Arkansas middle school students are currently using tobacco products. Sadly, unless something is done to discourage teens from using tobacco products, as many as 66,957 of our youth will die prematurely from smoking ⁽³⁾.

Myth: Tobacco taxes don't keep kids from smoking.
Reality: On the contrary, tobacco taxes are very effective at keeping kids from smoking. Youth are most directly affected by an increase in the cost of cigarettes. A recent study found that a 10-percent increase in the price of cigarettes would decrease the number of children who start to smoke by between three and ten percent depending upon their stage of smoking⁽⁴⁾. Most smokers actually begin smoking as adolescents; in fact, the average age of initiation is 12˝. More than 80 percent of adult smokers began smoking before age 18.

Myth: Tobacco taxes put an unfair burden on minorities and low-income smokers. (Tobacco taxes are regressive.)
Reality: Youth, minorities and low-income smokers are two to three times more likely to quit or smoke less than other smokers in response to price increases ⁽⁶⁾. Higher smoking rates among lower-income groups means that lower-income families and communities are now suffering the most from smoking and will, consequently, benefit the most from an increased tobacco tax on cigarettes.

Cigarette companies argue that tobacco tax increases are regressive and create an unfair burden on those with lower incomes. This is untrue. Higher smoking rates among lower income groups means that lower income families and communities suffer the most from smoking. Therefore, lower income populations would benefit greatly from any measures taken to reduce smoking, including raised sales taxes on tobacco.

Myth: Tobacco companies have already suffered enough by paying billions in the tobacco settlement.
Reality: The tobacco companies are enjoying unprecedented profits. Since the 1980s, Philip Morris' annual cigarette revenues have more than quadrupled to $42.7 billion in 1998, while its profits from cigarettes have roughly tripled to $6.5 billion (even after deducting $3.4 billion to cover costs associated with the state tobacco settlements). Since 1980, the prices charged for cigarettes in the United States by the cigarette companies have increased by more than 270 percent, roughly three times the rate of inflation ⁽⁸⁾.

Myth: A tobacco tax increase wouldn't raise significant revenue for our state.
Reality: We consider $229.2 million in new revenue significant, even accounting for some leakage to other states ⁽⁹⁾. An increase in the tobacco tax would also save an estimated $704.9 million in long-term health care costs and prevent 39,700 youth from smoking in Arkansas ⁽¹⁰⁾. 

It is estimated a 30% increase in the tobacco tax would raise an additional $229.2 million in revenue for Arkansas. Our state currently spends more than $633 million in health care costs to treat tobacco-related health expenses ⁽¹⁰⁾.

Studies consistently report that each state which has significantly increased its cigarette tax has seen a significant increase in state revenues ⁽³⁾. The Coalition for a Tobacco Free Arkansas realizes the tremendous impact raised tobacco taxes has had in other states, and feel that raising Arkansas’ tobacco tax would greatly reduce smoking, raise revenue and significantly decrease health care costs.

Myth: Our state legislature won’t support an increased tax on tobacco.
Reality: Now is the time to raise Arkansas’ tobacco tax. As time passes, inflation diminishes the value of cigarette tax rates and revenues because the taxes are so small in comparison to the total price per pack of cigarettes. By increasing state tobacco taxes, we help to return the tax rate to historical levels while reducing smoking, reducing the cost of smoking-related illnesses and helping to raise revenue (Source: State Cigarette Tax Rates and Rank, Date of Last Increase, Annual Pack and Sales and Revenues, and Related Data,” Campaign for Tobacco Free Kids, October 2002).

Myth: Tobacco will be smuggled into our state meaning lost revenue.
Reality: Yes, there may be some smuggling. However, it will not be sufficient enough to interfere with our two goals of increased revenue for the state and saving lives. To date no state has repealed a tobacco tax increase because of smuggling.

Myth: If a higher tobacco tax means people will quite smoking, how will programs operate (like Medicaid) which rely on the money?
Reality: Tobacco use is the number one preventable cause of death in our state. It is proven higher tobacco taxes reduce smoking rates, thus saving thousands of lives. By combining a tobacco tax with programs to discourage initiation and help smokers quit, we will reduce smoking even further, saving lives and dollars. Decreased smoking rates means our state will pay less money in long-term healthcare and other costs associated with tobacco use and secondhand smoke. The revenue produced by the tax is simply an additional benefit the state will accrue, despite the declines in smoking that will occur as a result of the price increase. While it is unlikely, should the declines in smoking ever actually cause revenues to decrease, the savings in healthcare costs would ultimately more than make up for the decline in tobacco tax revenue. The money that is currently used to pay these costs can then be redistributed to other meaningful programs.

1. National Center for Tobacco-Free Kids, October 2001.
2. National Center for Tobacco-Free Kids, October 2001.
3. Arkansas 1999 and 2000 Youth Tobacco Studies/Centers for Disease Control and Prevention.
4. "Effects of Price and Access Laws on Teenage Smoking Initiation: A National Longitudinal Analysis," University of Illinois at Chicago and the University of Michigan Institute for Social Research, April 2001.
5. "Substance Abuse: The Nation's Number One Health Problem," Robert Wood Johnson Foundation Chartbook, 2000.
6. Centers for Disease Control Web site, "Reducing Tobacco Use: A Report of the Surgeon General. U.S. Department of Health & Human Services, Centers for Disease Control & Prevention, National Center for Chronic Disease Prevention & Health Promotion, Office on Smoking & Health, 2000.
7. "State Cigarette Tax Increases Will Not Hurt U.S. Tobacco Farmers or Cigarette Factory Workers," Campaign for Tobacco-Free Kids, December, 2000.
8. "State Cigarette Tax Increases Will Not Hurt U.S. Tobacco Farmers or Cigarette Factory Workers," Campaign for Tobacco-Free Kids, December 2000.
9. National Center for Tobacco-Free Kid, January 2003
10. National Center for Tobacco-Free Kid, January 2003
    

Statistics & Advantages

Tobacco Taxes Keep Kids from Smoking

• 43.8 percent of Arkansas high school students currently use tobacco products.
• 22.4 percent of Arkansas middle school students currently use tobacco products.
• At present, 66,000 Arkansas youths are projected to die prematurely from smoking.
• One of every three young smokers will eventually die from a smoking-related illness.
  (Source: Arkansas 1999 and 2000 Youth Tobacco Studies/Centers for Disease Control and Prevention)
• Most people begin smoking as adolescents. Among youths who smoke, the average age of initiation is 12˝. In fact, more than 80 percent of adult smokers began smoking before the age of 18. Young people who smoke are 16 times more likely to drink heavily and 10 times more likely to use illicit drugs than their nonsmoking peers.
  (Source: Robert Wood Johnson Foundation Chartbook: "Substance Abuse: The Nation's Number One Health Problem,” 2000)
• By eighth grade, 41 percent of adolescents have smoked cigarettes. By the 12th grade, 63 percent of adolescents have smoked cigarettes.
  (Source: Robert Wood Johnson Foundation Chartbook: "Substance Abuse: The Nation's Number One Health Problem,” 2000.)
• Youth are up to three times as responsive to the price of tobacco products as are adults.
  (Source: "Effects of Price and Access Laws on Teenage Smoking Initiation: A National Longitudinal Analysis," by impacTEEN, a policy research partnership to reduce youth substance use, and YES! (Youth, Education, and Society), April 2001.)
• A recent study found that a 10-percent increase in the price of cigarettes would decrease the number of children who start to smoke by between three and ten percent depending upon their stage of smoking.
  (Source: "Effects of Price and Access Laws on Teenage Smoking Initiation: A National Longitudinal Analysis," University of Illinois at Chicago and the University of Michigan Institute for Social Research, April 2001.)
• Youth, minorities and low-income smokers are two to three times more likely to quit or smoke less than other smokers in response to price increases.
  (Source: Centers for Disease Control and Prevention Web site, "Reducing Tobacco Use: A Report of the Surgeon General," U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, and the National Center for Chronic Disease Prevention and Health Promotion, Office on Smoking & Health, 2000.)
• Higher cigarette prices will not simply reduce average cigarette consumption but will also reduce overall smoking prevalence. Higher prices will result in more smokers deciding to quit and fewer young people choosing to begin smoking.
  (Source: Centers for Disease Control and Prevention Web site, 2000.)

Tobacco Taxes Raise Revenue
Increasing Arkansas’ current tobacco tax by 30% would:

• Raise $229.2 million in new revenues each year
• Save $9.3 million each year due to fewer smoking-caused heart attacks and strokes
• Save $704.9 million in long-term health care cost
• Save $189 million in Medicaid cost directly related to tobacco related illness & disease
  (Source: National Center for Tobacco-Free Kids, January 2003)

State Cigarette Excise Tax Rates & Rankings

State	Excise Tax	Rank
Virginia	2.5	51
Kentucky	3	50
North Carolina	5	49
South Carolina	7	48
Georgia	12	46
Wyoming	12	46
Alabama	16.5	45
Missouri	17	43
West Virginia	17	43
Mississippi	18	41
Montana	18	41
Colorado	20	39
Tennessee	20	39
New Mexico	21	38
Oklahoma	23	37
Delaware	24	36
Idaho	28	35
South Dakota	33	34
Florida	33.9	33
Arkansas	34	32
Nevada	35	31
Iowa	36	29
Lousiana	36	29
Texas	41	28
North Dakota	44	27
Minnesota	48	26
New Hampshire	52	25
Ohio	55	24
Indiana	55.5	23
Nebraska	64	22
Utah	69.5	21
Wisconsin	77	20
Kansas	79	19
California	87	18
Vermont	93	17
Illinois	98	16
Alaska	100	11
DC	100	11
Maine	100	11
Maryland	100	11
Pennsylvania	100	11
Connecticut	111	10
Arizona	118	9
Hawaii	120	8
Michigan	125	7
Oregon	128	6
Rhode Island	132	5
Washington	142.5	4
New Jersey	150	2
New York	150	2
Massachusetts	151	1
Average:	62.00784314
Hawaii: 10-cents added effective 7/1/03 & 7/1/04 Rhode Island: Goes up to $1.50 effective 7/1/03 with 10-cent increases on 7/1 in next 5 yrs. Vermont: Goes up to $1.19 on 7/1/03. Tobacco states are: KY, VA, NC, SC, GA, TN their average excise tax is 8.3-cents

The U.S. Centers for Disease Control and Prevention estimates that smoking-caused health costs total $7.18 per pack sold in the United States. (Source: CDC, "Annual Smoking-Attributable Mortality, Years of Potential Life Lose, and Economic Costs -- United States 1995-1999," MMWR, April 11, 2002, www.cdc.gov/mmwr/preview/mmwrhtml/mm5114a2.htm.)

The following 21 states, Washington DC and Puerto Rico have implemented new cigarette increases in 2002:

1. Arizona
2. Connecticut
3. Hawaii (10-cents added effective 7/1/03 and 7/1/04)
4. Illinois
5. Indiana
6. Kansas
7. Louisiana
8. Maryland
9. Massachusetts
10. Michigan
11. Nebraska
12. New Jersey
13. New York
14. Ohio
15. Oregon
16. Pennsylvania
17. Rhode Island (Goes up to $1.50 effective 71/03, with 10-cent increases on 7/1 in the next five years)
18. Tennessee
19. Utah
20. Vermont (Goes up to $1.19 effective 7/1/03)
21. Washington
22. Puerto Rico

New York City also increased its local cigarette tax from eight cents to $1.50 per pack, effective 7/1/02.

Tobacco States are KY, VA, NC, SC, GA, TN. Federal cigarette tax is 39 cents per pack. Since the beginning of 1998, the major cigarette companies have increased the prices they charge by more than $1.25 per pack (but also instituted aggressive retail-level discounting for competitive purposes and to reduce related consumption declines.)

The average price for a pack of cigarettes nationwide is roughly $3.80 (including statewide sales taxes but not local cigarette or sales taxes – other than NYC’s $1.50 per pack cigarette tax), with considerable state-to-state differences because of different state tax rates, and different manufacturer, wholesaler, and retailer pricing and discounting practices. AK, DE, MT, NH & OR do not have state sales taxesl; CO has a state sales tax but it does not apply to cigarettes; and AL, GA & MO (unlike the rest of the states) do not apply their state sales tax to that portion of retail cigarette prices that represents the state's cigarette excise tax.

(Source: Campaign for Tobacco Free Kids, January 16, 2003)