Are High Taxes on Smokeless Tobacco Encouraging People to Smoke?

President Obama’s recent budget proposal to pay for pre-school programs by increasing cigarette taxes highlights the confusion both on federal and state levels over taxing tobacco products. A recent Mercatus working paper questions the efficiency and utility of sin taxes in general. But even more fundamentally, tobacco tax policy may fail in its primary goal, which is to reduce the health risks of consuming tobacco.

Since the goal of tobacco taxes is to reduce tobacco’s harms by discouraging its use, the tax rates on various tobacco products should be commensurate with their health risks. If smoking carries four times higher cancer risks than using smokeless tobacco, then the tax rates on cigarettes should be four times higher than taxes on, for example, smokeless tobacco. Yet if cigarettes are taxed at a lower rate than this ratio, the policy may in fact encourage tobacco users to smoke as opposed to using less harmful smokeless tobacco.

A health policy that does not encourage riskier tobacco products should set the ratio of smokeless tobacco and cigarette taxes similar to their health risk ratios. According to a recent review of medical studies, snus (a common type of smokeless tobacco) users face considerably lower oral cancer, gastric cancer and cardiovascular disease risks compared to smokers (see Table 1). In addition, other studies found that, unlike smoking, snus does not lead to lung cancer (the table shows the lung cancer risk for nonsmokers compared to smokers). Importantly, snus users do not expose those around them to second hand smoking, further limiting its negative health impacts. Based on the relative health risks, snus taxes should be considerably lower than cigarette taxes.

Table 1. Comparative Health Risks

Health Risk Risk Ratio (Snus users vs. Smokers)
Oral Cancer 0.43
Gastric Cancer 0.60
Cardiovascular Diseases 0.55
Lung Cancer 0.14

So how do states fare? Table 2 shows the tax rates for cigarettes and smokeless tobacco for select states, which are calculated based on the data are from Tobacco Free Kids campaign (in the source, the tax rates are per ounce of snus and per pack of cigarettes). To make sure that we compare apples to apples, I account for the varying nicotine content in these products. According to a recent study, consuming one gram of snus delivers nicotine content equal to smoking a cigarette. That works out to about a can of snus (typically 1.2 oz) replacing approximately 35 cigarettes (almost two packs). So I convert state taxes to show rates per equivalent nicotine amounts. For simplicity, I focus only on the states that tax smokeless tobacco by ounce. Other states tax smokeless tobacco based on either wholesale or manufacturing prices rather than retail, making calculations trickier.

The relative cancer and cardiovascular disease risks of snus are lower than the risks of smoking, ranging between 0.14 and 0.6 (see Table 1). States with a high snus to cigarette tax ratio are essentially pushing tobacco users towards smoking, which carries higher health risks (coded red in the table). States with a moderate tax ratio are somewhat neutral (coded yellow). Their tax ratio is commensurate with relative health risks for some but not all risk sources. Finally, states with a low tax ratio generally encourage tobacco consumers to use a safer product (coded green).

Table 2. State Tobacco Taxes for Equivalent Nicotine Content

State Snus Tax (gram) Cigarette Tax (cigarette) Tax Ratio (Snus/Cigarette)
Arizona $0.01 $0.10 7.88%
Connecticut $0.04 $0.17 20.75%
Delaware $0.02 $0.08 23.81%
District of Columbia $0.03 $0.13 21.16%
Illinois $0.01 $0.10 10.69%
Iowa $0.04 $0.07 61.73%
Maine $0.07 $0.10 71.25%
Montana $0.03 $0.09 35.27%
Nebraska $0.02 $0.03 48.50%
New Jersey $0.03 $0.14 19.60%
New York $0.07 $0.22 32.44%
North Dakota $0.02 $0.02 96.20%
Oregon $0.06 $0.06 106.42%
Rhode Island $0.04 $0.17 20.39%
Texas $0.04 $0.07 59.54%
Vermont $0.07 $0.13 50.35%
Washington $0.09 $0.15 58.91%
Wyoming $0.02 $0.03 70.55%

Note: snus and cigarette taxes are rounded to nearest cent. The tax ratio is based on actual tax values.

The picture that emerges from the table is that of a confused health policy pursued by the states. Only two states in the list set the snus and cigarette tax rates at the level that does not steer consumer towards riskier tobacco products. Most states set the tax rates at levels that are commensurate with some risks but not the others. Specifically, most states do not account for the fact that snus does not cause lung cancer, which is one of the greatest risks of smoking. Finally, a few states may be steering tobacco users towards cigarettes by setting snus taxes too high (or cigarette taxes too low).

I am not claiming that smokeless tobacco is harmless or that states should promote smokeless tobacco as a substitute for cigarettes. As the National Cancer Institute points out, smokeless tobacco is not a safe alternative to smoking. It still carries increased health risks, including certain types of cancer and cardiovascular diseases. But current policy on tobacco taxes may result in the unintended consequence of pushing tobacco users away from less risky forms of tobacco towards riskier ones.

4 thoughts on “Are High Taxes on Smokeless Tobacco Encouraging People to Smoke?

  1. Brewlady

    Just as tobacco comes in various forms, the level of risk also varies. It is common to see many of the anti-smoking/tobacco/nicotine groups state that there is no safe form of tobacco use. That is simply word play. There are many forms of tobacco that are SAFER than tobacco cigarettes. Dr. Carl Phillips has calculated that a few months of smoking cigarettes is worse than a lifetime of using a low risk alternative like an electronic cigarette. My sad state of Taxachusetts is currently considering raising the tax on smokeless tobacco from 25% to 45% of wholesale.

    Tobacco Harm Reduction works! I had given up on trying to quit smoking. After 36 years it was just not going to happen. But thanks to electronic cigarettes I haven’t smoked in almost three years. Excessive taxation on safer alternatives may help legislators replace the declining tax revenue they are experiencing from reductions in cigarette sales but it does nothing for the health of their constituents. Adult smokers deserve access to truthful information in order to make their own choices. I know the choice I have made is SAFER. It is unconscionable that places like Massachusetts are willing to penalize adults who have switched to a low risk alternative.

  2. Carl Phillips

    Nice idea, and thanks for the support about the basic point. But you should probably talk to people who know a lot more about the topic before you go out an a limb and make claims.

    Your claim that the tax should be proportional to the risk is easily shown to be wrong with a bit of arithmetic. See:

    You badly misinterpret what the numbers you put in figure 1 mean. You misunderstood that paper.

    Your conversion between cigarette and snus quantity is iffy, at best.

    There are many of us who know a lot about this topic. Why not ask someone to review things before they go to press?

    Also, unrelated to the science “Only two states in the list set the snus and cigarette tax rates at the level that does not steer consumer towards riskier tobacco products.” But you cherrypicked a subset of states. This is very misleading.

    1. Sherzod Abdukadirov

      Thank you for you feedback and a link to an interesting study. In response to your specific comments:

      “Your claim that the tax should be proportional to the risk is easily shown to be
      wrong with a bit of arithmetic”

      I agree, calculating actual tax rates to make sure that they are commensurate with the products’ health risks would be a bit more involved. However, I believe the data presented in the tables demonstrate my main points:

      (1) cigarettes pose higher health risks than smokeless tobacco

      (2) the wide variation in states’ smokeless tobacco taxes (compared to cigarette taxes)
      points to a confused policy on smokeless tobacco, which in some cases may discourage smokers from switching to safer tobacco products.

      “But you cherrypicked a subset of states.”

      For convenience, I limited the sample to the states that tax smokeless tobacco by ounce. Other states assess smokeless tobacco taxes as a percentage of wholesale or manufacturing prices. Unless there is a systematic difference between the former and the latter, the sampling should
      not impact the outcomes.

  3. Steamlite E Cigarette reviews

    No high tax on tobacco cigarette will decrease smoking ratio and increase health ratio. But high tax on smokeless tobacco may encourage smokers to smoke because many people do not smoke because of its smoke but if cigarette which is smokeless than people will more smoke cigarettes.

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