I love cigarettes and tobacco : SIGNIFICANT TOBACCO TAX INCREASES REDUCE TOBACCO USE, PARTICULARLY AMONG YOUTH, DESPITE TOBACCO COMPANY PRICE DISCOUNTS AND PROMOTIONAL EFFORTS

Saturday, November 9, 2019

SIGNIFICANT TOBACCO TAX INCREASES REDUCE TOBACCO USE, PARTICULARLY AMONG YOUTH, DESPITE TOBACCO COMPANY PRICE DISCOUNTS AND PROMOTIONAL EFFORTS

Price Increases Reduce Tobacco Use, Especially Among Kids The scientific research is very clear that raising cigarette prices is one of the most effective ways to reduce smoking, especially among kids.1 The 2014 Surgeon General’s Report, The Health Consequences of Smoking—50 Years of Progress, stated, “Evidence shows that large tax and, hence, price increases will decrease tobacco use each time they are implemented.”2 Additional agencies and organizations that have studied and support increasing tobacco product prices to reduce tobacco use include: the National Cancer Institute,3 the U.S. Centers for Disease Control and Prevention,4 the Task Force on Community Preventive Services,5 the National Academy of Sciences’ Institute of Medicine,6 the President’s Cancer Panel,7 the World Health Organization,8 and the World Bank.9 However, tobacco tax increases will only reduce tobacco use if they lead to a noticeable increase in the price of tobacco products. Several factors can reduce the impact of the tobacco tax increase on public health, including the tobacco companies’ price discounting and promotional activities. If the tax increase is small, it can be easily undermined by tobacco industry discounting and promotional strategies so that it will have minimal, if any, effect on reducing tobacco use. For example, a 50-cent coupon was available as an onsert on a pack of cigarettes sold in Louisiana after its 50-cent cigarette tax increase went into effect in July 2015, nullifying the increase. If the tax increase is large enough to significantly raise the price so that it cannot be offset by tobacco industry strategies, it will decrease tobacco use, particularly among kids. Knowing that large price increases reduce tobacco use, tobacco companies spend billions of dollars each year to keep the price of tobacco products low by implementing aggressive price discounting and “retail value added” offers, such as buy-downs (payments to retailers that reduce the price to consumers), coupons, and multi-pack discounts (e.g., buy two packs get one free). These strategies diminish the effect of a tax increase by minimizing the price change so consumers are not deterred from purchasing. And because research shows that that youth are much more responsive to price changes than adults,10 discounting strategies are particularly harmful to kids. Tobacco Companies Invest Heavily in Price Discounts and Promotional Efforts That Target Kids • In 2017 (the most recent available), the top 5 cigarette companies spent over $7.3 billion on price discounts for cigarettes (e.g., off-invoice discounts, buy-downs and voluntary price reductions to reduce the price of cigarettes to consumers), accounting for 85.5 percent of total cigarette company marketing expenditures and making it by far the largest marketing expense category. Cigarette companies spent an additional $300 million on coupons. 11 Combined, these types of price-related discounts amount to 67 cents off every pack of cigarettes sold in the U.S. in 2017. 12 • Price discounts expenditures by smokeless tobacco companies totaled $438 million (61% of all marketing expenditures) in 2017. As with cigarettes, price discounts for smokeless products were the largest expense category. Smokeless tobacco companies spent an additional $76.9 million on coupons, a 36.7 percent increase from the amount spent in this category in 2016 ($56.5 million). Smokeless tobacco companies reported spending $4.6 million on retail value added offers in 2017. 13 • A national study of point-of-sale marketing found that more than 80 percent of convenience stores and more than half of supermarkets have special price promotions advertised inside; 42 percent of convenience stores have exterior price promotions. Across all store types, 40 percent have special price promotions for Camel cigarettes advertised inside, 24 percent have price promotions for Marlboro, and 23 percent have price promotions for Newport.14 These three brands also happen to be preferred by eight out of ten of youth smokers—a fact which should come as no surprise, since the U.S. Surgeon General has stated that youth are sensitive to tobacco industry price promotions.15 SIGNIFICANT TOBACCO TAX INCREASES REDUCE TOBACCO USE, PARTICULARLY AMONG YOUTH, DESPITE TOBACCO COMPANY PRICE DISCOUNTS AND PROMOTIONAL EFFORTS Significant Tobacco Tax Increases Reduce Tobacco Use, Particularly among Youth / 2 In U.S. v. Philip Morris (the 2006 civil racketeering judgment against major cigarette manufacturers), the court specifically found that tobacco companies use strategic price reduction strategies such as coupons and multi-pack discounts to target young people.16 • “Defendants recognize that youth and young adults are more responsive to increases in cigarette and other tobacco prices and will not try smoking or continue to smoke if cigarette prices rise. Despite that recognition, Defendants continue to use price-based marketing efforts as a key marketing strategy.” • “Defendants’ price-related marketing efforts, including coupons [and] multi-pack discounts, have partially offset the impact of higher list prices for cigarettes, historically and currently, particularly with regard to young people.” • “Defendants could significantly reduce adolescent smoking by. . .stopping all price related marketing (i.e., discounting and value added offers of cigarettes, especially in convenience stores, where this kind of marketing is concentrated and where young people are more likely to purchase cigarettes.” At the same time as they engage in discounting schemes, tobacco companies gradually raise their product prices (usually by 5 to 10 cents per pack twice a year), because they know that these amounts are too small to drive smokers to quit, but can still substantially increase industry profits even as sales are declining. Financial analysts focusing on the tobacco industry continue to use the terms “impressive,” “strong,” and “healthy” to describe tobacco companies’ ability to control price, known as “pricing power.”17 Tobacco Companies’ Price Discounting Increases Smoking, Particularly Among Youth The 2012 Surgeon General’s Report, Preventing Tobacco Use Among Youth and Young Adults, reviewed the available research to date regarding tobacco tax increases and price discounting and concluded the following: • “…the industry’s extensive use of price-reducing promotions has led to higher rates of tobacco use among young people than would have occurred in the absence of these promotions.”18 This conclusion expands upon the 1994 U.S. Surgeon General’s report, which found that the use of value-added or coupon promotions makes cigarettes more affordable to kids and those with less financial resources. That same report also states that coupons affect new users by encouraging them to smoke more, moving from the trial stage to being a regular smoker.19 • In addition, the Surgeon General found, “Because there is strong evidence that as the price of tobacco products increases, tobacco use decreases, especially among young people, then any actions that mitigate the impact of increased price and thus reduce the purchase price of tobacco can increase the initiation and level of use of tobacco products among young people.”20 In addition, numerous studies have demonstrated the relationship between tobacco marketing and youth smoking behavior: • A 2018 study using data from the National Institute on Drug Abuse and the Food and Drug Administration’s Population Assessment of Tobacco and Health (PATH) study found that one in 13 youth − 1.9 million youth 12 to 17 years old − had received some sort of tobacco product discount coupon, whether they used tobacco products or not. In addition, the researchers found that youth who received coupons were more likely to try a new tobacco product and report current use one year later compared to those who did not receive coupons.21 • Another 2018 study using data from the PATH study found that, among adults, receiving discount coupons was associated with higher odds of smoking initiation among never smokers, experimenters becoming established smokers, non-daily smokers becoming daily smokers, former smokers relapsing back to smoking, and reduced odds of cessation. Adults of lower socioeconomic status were more likely to report receiving discount coupons.22 Significant Tobacco Tax Increases Reduce Tobacco Use, Particularly among Youth / 3 • A 2007 study in the Archives of Pediatrics and Adolescent Medicine concluded that cigarette retail marketing practices and price-based promotions increase smoking initiation and that restrictions on this type of marketing may reduce youth smoking.23 Specifically, the study found: ➢ “These findings support previous research that shows price-based promotional offers are particularly appealing to young price-sensitive smokers. Thus, the beneficial effects of higher cigarette prices are undermined when youth are able to take advantage of cigarette promotions. In addition, our results suggest higher cigarette prices are associated with discouraging youth from progressing to established smoking at most levels of smoking uptake.” ➢ “Overall, our results provide evidence that restricting point-of-sale advertising will discourage youth from trying smoking and policies that increase cigarette prices and/or restrict pricebased promotions will have a long-term positive impact by preventing youth from moving farther along the smoking uptake continuum towards regular smoking.” • A 2005 study found that the more the tobacco industry spent on price promotions, the higher the initiation to regular smoking by 14-17 year olds despite price increases by the industry or due to increasing tax rates.24 In other words, the industry was able to dampen the public health benefits of preventing kids from starting to smoke from price increases by making available more promotions that reduced product prices. • Promotional offers on cigarettes are used by all categories of smokers – especially young adults, women, and African Americans – with 35 percent of smokers using promotional offers every time they saw one.25 • In a report called, Camel Growth Among Males 18-24 Years Old in the Mid-West, R.J. Reynolds concluded that “[t]he major factor contributing to CAMEL’s dramatic growth among Mid-West 18-24 year old males appears to be the increased level of Mid-West promotional support, and in particular, CAMEL’s targeted promotions…”26 Campaign for Tobacco-Free Kids, June 26, 2019 / Ann Boonn 1 Chaloupka, FJ & Warner, KE, “The Economics of Smoking,” prepared for Newhouse, J & Culyer, A, eds, The Handbook of Health Economics, 2000. Chaloupka, FJ, “Macro-Social Influences: The Effects of Prices and Tobacco Control Policies on the Demand for Tobacco Products,” Nicotine and Tobacco Research 1(Suppl 1):S105-9, 1999; other studies at http://tigger.uic.edu/~fjc/; Tauras, J, “Public Policy and Smoking Cessation Among Young adults in the United States,” Health Policy 6:321-32, 2004; Tauras, J, et al., “Effects of Price and Access Laws on Teenage Smoking Initiation: A National Longitudinal Analysis,” Bridging the Gap Research, ImpacTeen, April 24, 2001, and others at http://www.impacteen.org/researchproducts.htm. Chaloupka, FJ & Pacula, R, An Examination of Gender and Race Differences in Youth Smoking Responsiveness to Price and Tobacco Control Policies, National Bureau of Economic Research, Working Paper 6541, April 1998; Emery, S, et al., “Does Cigarette Price Influence Adolescent Experimentation?,” Journal of Health Economics 20:261-270, 2001; Evans, W & Huang, L, Cigarette Taxes and Teen Smoking: New Evidence from Panels of Repeated Cross-Sections, working paper, April 15, 1998; Harris, J & Chan, S, “The Continuum-of-Addiction: Cigarette Smoking in Relation to Price Among Americans Aged 15-29,” Health Economics Letters 2(2):3-12, February 1998, http://www.mit.edu/people/jeffrey/HarrisChanHEL98.pdf. U.S. Department of Health and Human Services (HHS), Reducing Tobacco Use: A Report of the Surgeon General, Atlanta, Georgia: HHS, CDC, National Center for Chronic Disease Prevention and Health Promotion, Office on Smoking and Health, 2000, http://profiles.nlm.nih.gov/NN/B/B/L/Q/_/nnbblq.pdf 2 HHS, The Health Consequences of Smoking: 50 Years of Progress. A Report of the Surgeon General, Atlanta, GA: U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Chronic Disease Prevention and Health Promotion, Office on Smoking and Health, 2014, http://www.surgeongeneral.gov/library/reports/50-years-of-progress/index.html, at 852. Previous Surgeon General’s reports have also supported increasing tobacco tax rates to reduce tobacco use: HHS, Preventing Tobacco Use Among Youth and Young Adults: A Report of the Surgeon General, 2012, http://www.cdc.gov/tobacco/data_statistics/sgr/2012/index.htm, at 812. HHS, Reducing Tobacco Use: A Report of the Surgeon General, 2000, http://www.cdc.gov/tobacco/data_statistics/sgr/2000/index.htm, at 67. HHS, Preventing Tobacco Use Among Young People: A Report of the Surgeon General, 1994. 3 National Cancer Institute, Changing Adolescent Smoking Prevalence, November 2001, http://cancercontrol.cancer.gov/brp/tcrb/monographs/14/index.html, at 198. 4 U.S. Centers for Disease Control and Prevention (CDC), “State Cigarette Minimum Price Laws --- United States, 2009,” Morbidity and Mortality Weekly Report (MMWR) 59(13):389-392, April 9, 2010, http://www.cdc.gov/mmwr/preview/mmwrhtml/mm5913a2.htm; “Cigarette excise tax increases reduce tobacco use and initiation.” CDC, “State Cigarette Excise Taxes --- United States, 2009,” MMWR 59(13):385-388, April 9, 2010, http://www.cdc.gov/mmwr/preview/mmwrhtml/mm5913a1.htm. 5 Task Force on Community Preventive Services, “Tobacco,” in: Zaza S, Briss PA, Harris KW, eds., The Guide to Community Preventive Services: What Works to Promote Health? Atlanta (GA): Oxford University Press, 2005:3-79. Significant Tobacco Tax Increases Reduce Tobacco Use, Particularly among Youth / 4 6 National Academy of Sciences’ Institute of Medicine (IOM), Ending the tobacco problem: A blueprint for the nation, Washington, DC: The National Academies Press, 2007. 7 President’s Cancer Panel, Promoting Healthy Lifestyles, 2006-2007 Annual Report, August 2007, http://deainfo.nci.nih.gov/advisory/pcp/annualReports/pcp07rpt/pcp07rpt.pdf. 8 “Evidence from countries of all income levels shows that price increases on cigarettes are highly effective in reducing deman d. Higher prices induce cessation and prevent initiation of tobacco use,” World Health Organization, Taxation, accessed April 19, 2013 at http://www.who.int/tobacco/economics/taxation/en/index.html. 9 World Bank, Curbing The Tobacco Epidemic: Governments and the Economics of Tobacco Control, May 1999, http://go.worldbank.org/20HVZ6A4J0. 10 Testimony of Frank J. Chaloupka, Ph.D., Distinguished Professor of Economics, University of Illinois at Chicago, before New York City Council Committee on Health on Intros 1021 and 250A, May 1, 2013, at 6-7. 11 U.S. Federal Trade Commission (FTC), Cigarette Report for 2017, 2019, https://www.ftc.gov/system/files/documents/reports/federal-tradecommission-cigarette-report-2017-federal-trade-commission-smokeless-tobacco-report/ftc_cigarette_report_2017.pdf [data for top 5 manufacturers only]. 12 U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB), Tobacco Statistics, 2017, http://www.ttb.gov/tobacco/tobacco-stats.shtml. 13 FTC, Smokeless Tobacco Report for 2017, 2019, https://www.ftc.gov/system/files/documents/reports/federal-trade-commission-cigarettereport-2017-federal-trade-commission-smokeless-tobacco-report/ftc_smokeless_tobacco_report_2017.pdf [Data for top 5 manufacturers only]. 14 Center for Public Health Systems Science. Point-of-Sale Report to the Nation: The Tobacco Retail and Policy Landscape, 2014. 15 SAMHSA’s public online data analysis system (PDAS), National Survey on Drug Use and Health, 2016, https://pdas.samhsa.gov/#/survey/NSDUH-2016-DS0001?column=CATAG3&results_received=true&row=CIG30BR2&weight=ANALWT_C. Youth defined as 12-17 year olds. See also CDC, “Cigarette Brand Preference and Pro-Tobacco Advertising Among Middle and High School Students— United States, 2012-2016,” MMWR, 67(4): 119-124, February 2, 2018, https://www.cdc.gov/mmwr/volumes/67/wr/pdfs/mm6704a3-H.pdf. 16 U.S. v. Philip Morris, 449 F. Supp. 2d at 1112-1113. 17 Wells Fargo, MO Announces List Price Increases, September 20, 2017. Wells Fargo, Nielsen: Tobacco 'All Channel' Data - 11/4, November 14, 2017. 18 HHS, Prevention Tobacco Use Among Youth and Young Adults: A Report of the Surgeon General, 2012, http://www.cdc.gov/tobacco/data_statistics/sgr/2012/index.htm, at 530. 19 HHS, Preventing Tobacco Use Among Young People: A Report of the Surgeon General, Atlanta, GA: HHS, Public Health Service, Centers for Disease Control and Prevention, National Center for Chronic Disease Prevention and Health Promotion, Office on Smoking and Health, 1994. 20 HHS, Prevention Tobacco Use Among Youth and Young Adults: A Report of the Surgeon General, 2012, http://www.cdc.gov/tobacco/data_statistics/sgr/2012/index.htm, at 599. 21 Rose, S, et al., “Adolescent tobacco coupon receipt, vulnerability characteristics and subsequent tobacco use: analysis of PATH Study, Waves 1 and 2,” Tobacco Control 27:e50-e56, 2018. 22 Choi, K, et al., “Receipt of tobacco direct mail/email discount coupons and trajectories of cigarette smoking behaviours in a nationally representative longitudinal cohort of US adults,” Tobacco Control [epub ahead of print], June 19, 2018, pii: tobaccocontrol-2018-054363. doi: 10.1136/tobaccocontrol-2018-054363. 23 Slater, SJ, et al., “The Impact of Retail Cigarette Marketing Practices on Youth Smoking Uptake,” Archives of Pediatrics and Adolescent Medicine 161:440-445, May 2007. 24 Pierce, JP, et al., “Tobacco industry price-subsidizing promotions may overcome the downward pressure of higher prices on initiation of regular smoking,” Health Economics 14:1061-1071, 2005. 25 White, VM, et al., “Cigarette Promotional Offers: Who Takes Advantage?” American Journal of Preventive Medicine 30(3):225-231, 2006. 26 Creighton, FV, Camel Growth Among Males 18-24 Years Old in the Mid-West, R.J. Reynolds memo to RT Caufield, July 25, 1986, Bates No. 505727418/7431, http://legacy.library.ucsf.edu/tid/pda72d00.

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