Researcher: Hike In Kansas Tobacco Tax Would Generate Stable Revenues
A university researcher says his data suggests a proposed tax increase on cigarettes would provide a stable revenue stream for the state while also generating big saving on health care costs.
Frank Chaloupka, an economics professor from the University of Illinois at Chicago, said the $1.50-per-pack increase would cause some Kansans to quit smoking, but not enough to offset the revenue gained from those who continue. The savings in health care costs from those who do quit could amount to $1 billion over five years.
“You do have it both ways,” he said. “We’ve seen this in state after state after state.”
Chaloupka is the head of the university’s Health Policy Center and director of Tobacconomics, a group of economists and other policy researchers who study tobacco control issues.
He has authored several studies on the effect of tobacco taxes in other states.
“You see the same patterns,” Chaloupka said. “Whenever taxes and prices go up, you see reductions in overall cigarette smoking.”
Representatives from the American Heart Association and other health advocacy groups introduced Chaloupka and his research to key Kansas legislators Friday in an attempt to re-energize a push for a tobacco tax increase that has thus far gained little traction in the Capitol.
Gov. Sam Brownback proposed the increase as part of his effort to close a budget gap of more than $600 million.
But Republican leaders in both the House and Senate have been cool to the idea. Representatives of the Kansas Chamber of Commerce and the convenience store industry testified in committee hearings that the increase would hurt businesses, especially those in the Kansas City area, because Missouri has the nation’s lowest cigarette tax.
Chaloupka’s research on the proposes Kansas tax increase was paid for in part by a grant from the National Cancer Institute at the federal National Institutes of Health.
He said the increase is projected to cause about 25,000 adult smokers to quit and dissuade another 25,000 children from starting.
The reduced smoking rates are estimated to prevent almost 15,000 smoking-related deaths and lead to major savings in state health care spending.
But Chaloupka said the increased cigarette tax still would provide a new revenue stream for the state, because the reductions in cigarette purchases would not offset the increased tax on each pack.
“The revenues that are generated are very stable, and very predictable,” he said. “Every time the state raises their taxes, they’re going to see big increases in revenues.”
That has proved true thus far in the dozens of state tax increases that Chaloupka has studied, including Kansas’ last cigarette tax hike, in 2002.
The state’s division of budget estimates that the tax increase currently on the table would provide about $72 million in additional state revenue the first year.
Chaloupka said much of the smoking reduction would come after that initial sticker shock, causing new revenue to fall before leveling off near $45 million per year five years after the tax increase.
“The reductions in consumption are not in proportion to the increase in price,” he said. “Basically, we estimate for every 10 percent increase in price, there’s about a 4 percent decrease in consumption.”
Chaloupka said his research suggests some Kansans will cross the border to buy their cigarettes, but not in numbers that would drastically reduce the effectiveness of the policy change.
When surrounding states have increased their tobacco taxes in the past, it has raised the revenue rates in Missouri slightly but raised far more revenue in the states in which the hikes occurred.
“You get this really small increase in revenues in Missouri, because maybe there is a little bit of cross-border shopping,” Chaloupka said. “But it’s certainly generating the revenues that were expected in the states that raised their taxes.”
Andy Marso is a reporter for KHI News Service in Topeka, a partner in the Heartland Health Monitor team.