Original Article
The debate over weight- versus price-based taxation of snuff in the United States’ state legislatures David S. Timberlakea,*, Mojgan Samia, Sonam Patelb, Shamili Thiagarajanc, Ramin Badiyana, and Shay Willardd a University of California, Irvine, Anteater Instruction & Research Building, Room 2044, Irvine, California 92617, USA. E-mail: [email protected] b c
Emory University, Atlanta, Georgia, USA.
California State University, San Bernardino, USA.
d
University of Southern California, Los Angeles, California, USA.
*Corresponding author.
Abstract
Discount snuff, known for its cheap price, high nicotine content, and popularity among youth, has increased substantially in market share in the United States. As a likely result, the leading manufacturer of premium snuff has supported legislation changing the basis for taxing snuff from price to weight. To determine which public health issues arose in legislative debates, we transcribed 17 of 52 bills from US state legislatures and coded for arguments broadly categorized into public health, fair taxation, tax revenue, tax efficiency, and anti-competitiveness. State legislators expressed frustration that equitable taxation, revenue generation, and prevention of youth tobacco use were frequently conflated in the debates. Public health advocates expressed concerns over youths’ incentives to purchase low-weight snuff, but seldom discussed youths’ growing preference for discount snuff. The evolving market of moist snuff is a critical consideration for US state legislators as well as policy makers from other countries who may evaluate taxation methods for alternate tobacco products. Journal of Public Health Policy (2014) 35, 337–350. doi:10.1057/jphp.2014.10; published online 1 May 2014 Keywords: snuff; tobacco control; legislation; ad valorem; excise taxes
Introduction The smokeless tobacco industry in the United States has undergone major changes in the past decade in the way that it markets and
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350 www.palgrave-journals.com/jphp/
Timberlake et al
manufactures moist snuff – dipping tobacco that is finely ground. These changes and their implications have been well documented in the academic literature.1–5 In contrast, the trend in changing the taxation of snuff across US state legislatures has received little attention by academics. Currently, many states are debating the shift from a percentage of product price (ad valorem or ‘price-based’) to product weight ($/ounce; ‘weight-based’). Delnevo et al6 argued that enactment of weight-based tax legislation in New Jersey would increase youths’ use of snuff and decrease state revenues relative to ad valorem taxation.6 These arguments in opposition to the tax change are also voiced by leading public health organizations, such as the Campaign for TobaccoFree Kids (http://www.docstoc.com/docs/22560499/Best-Way-to-TaxSmokeless-Tobacco). They argue that the lower taxed low-weight snuff (for example snus) and the premium brands, whose gross price would be more comparable with the discount brands under the weight-based tax policy, are attractive to price-sensitive youths. Conversely, it can be argued that weight-based taxation may contribute to a decline in youths’ use of snuff because higher taxes may stem the rising popularity of the discount brands.7 Although passage of the tax legislation is anticipated to yield short-term revenue gains for states, it may yield long-term revenue losses due to the inability to account for inflation.8 The United States Smokeless Tobacco Company (USSTC) is the likely driving force behind the trend in states’ passage of the tax legislation because its premium brands would be taxed the same as the discount brands, both of which are typically sold as 1.2 ounces. In the year 2000, the USSTC lost a US$1 billion antitrust settlement against its leading competitor, the Conwood Company, which may have been the impetus for Conwood’s advertising investment in its discount brand Grizzly.9 As a likely result, Grizzly ascended from being the third most popular snuff brand in 2005 to the most popular brand in 2009.7,10 This trend concerns public health professionals because the tobacco is inexpensive, popular among youth, and has a high content of free nicotine.7 Thus, adolescents who prefer this brand are at risk of becoming dependent on nicotine. The few published studies on taxation of smokeless tobacco have estimated price elasticity of demand,11–13 the change in SLT use in response to a tax increase. These studies have reported a negative elasticity of demand, indicating that SLT use decreases with an increase in SLT taxes. Estimates of elasticity across products (cross-tax elasticity) indicate that
338
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
Tax legislation on snuff
SLT use increases with an increase in cigarette taxes,12,13 suggesting that the two tobacco products are economic substitutes. This substitution may also serve as a form of harm reduction for smokers who are susceptible to a host of respiratory illnesses. Proponents of harm reduction are likely to argue in favor of weight-based taxation as an incentive for smokers to switch to SLT (snus) that is low in weight, and hence low in price, in addition to being low in the cancer-causing nitrosamines.14 None of the cited economic studies examined the debate over how smokeless tobacco should be taxed (price versus weight). The World Health Organization (WHO) has emphasized the need for greater attention to the issue (http://whqlibdoc.who.int/publications/ 2010/9789241563994_eng.pdf), particularly in light of the marketing of the novel SLT products.15 Our study focuses on US state legislatures and the recent trend to legislate weight-based taxation of snuff. The study’s objective was to assess content of the arguments about the likely impact of the tax change on youth tobacco use, as reflected by changes in the gross price of lowweight snuff, premium snuff, and discount snuff. In examining this issue, we analyzed debates at public hearings and floor debates in US state legislatures from the period January 2000 through June 2013.
Methods Data source We used five sources of data – the State Cancer Legislative Database Program (http://www.scld-nci.net/mtcindex.cfm), newspaper articles, websites of 50 state legislatures, state librarians, and the Campaign for Tobacco-Free Kids in identifying 52 tax bills proposed between January 2000 and June 2013. Among them, 21 bills passed, 25 bills did not pass or died in committee, and six bills proposed a change in snuff taxation from weight to price (one of which passed). The 52 bills were filed in 25 state legislatures where a single bill was proposed, and 12 state legislatures where two or more bills were proposed in separate years. We did not include bills proposing only a change in the level of taxation, either price or weight. We obtained audio files and written testimony of the legislative debates for 17 of the 52 identified bills. They originated from floor debates and public hearings, the latter comprising most of the material analyzed. The 17 bills had been proposed in 15 state legislatures
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
339
Timberlake et al
(Wyoming, Nebraska, Utah, Virginia, Tennessee, Oregon, Delaware, Hawaii, Nevada, Connecticut, Alaska, Washington, Texas, Maine, North Dakota). Audio files from the 22 other states that had proposed tax legislation were either unavailable or not directly relevant to the debate over snuff taxes (for example, biennial budget bills). We transcribed the audio files verbatim into documents, approximately 72 330 words in total. The transcripts ranged in word count from 183 (Virginia floor debates) to 16 806 (Hawaii public testimonials). From the 17 transcripts, we identified 172 individuals who participated in either a floor debate or public hearing (including written testimonials). Among them, 89 made at least one of the arguments described below, yielding a total of 167 coded arguments. Content analysis Prior to the review of transcript data, we developed codes for arguments supporting and opposing the legislation as identified in newspapers, organizational statements, position papers, and letters6 (see Table 2 for examples of arguments). Subsequently, we added codes developed from transcript data using an inductive approach.16 A total of three arguments, pertaining to a likely change in snuff use, were coded as public health and corresponded to an increase in use of low-weight snuff (as a result of a tax decrease), an increase in use of premium snuff (as a result of equitable tax with discount snuff), and a decrease in use of discount snuff (as a result of a tax increase). We categorized arguments identified as being economic in origin into the following four subgroups: (1) fair taxation that included equity for tobacco products/companies, equity between state and federal government, fairness for the poor who are burdened by high taxes, and the harm or negative externality to society; (2) tax revenue that included gains, losses, and a neutral effect of the tax change on state budgets; (3) tax efficiency that pertained to the convenience/manageability of the tax systems; and (4) anti-competitiveness that pertained to the tax’s likely impact on the smaller market for discount snuff. In addition, we observed less frequent arguments such as the growth of ‘black markets’ and allocation of tax revenue for healthcare/tobacco-control efforts (not reported in the results section). Members of our research team independently coded the transcript data for the states to which they were assigned. The research team then reviewed the coding as a group and resolved discrepancies by vote.
340
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
Tax legislation on snuff
The code for any given argument was counted only once for individuals who repeatedly made the same argument. Upon concluding the analysis of transcript data, we examined the legislation and coded for provisions that might affect the legislation’s passage, including a minimum tax on snuff, an increase in cigarette tax, and non-tobacco revenue measures.
Results Trend in weight-based tax legislation Only two states, Alabama and Arizona, had taxed moist snuff by weight prior to the year 2000. By the end of 2001, eight states had considered changing the basis for taxing snuff from price to weight; among them, North Dakota and Connecticut approved the tax change. A more recent trend in state legislatures’ passage of weight-based taxation was observed from 2006 to 2012. During this period, 35 bills proposing weight-based taxation were introduced in state legislatures, 17 of which passed. Other states have attempted unsuccessfully to revert back to ad valorem taxation (Connecticut, Virginia, Kentucky, North Dakota); Wisconsin’s legislature repealed weight-based taxation in 2009, after having approved it in 2007. Examination of legislation proposed from January 2000 through June 2013 revealed provisions that might affect passage (see Table 1). One such provision was a minimum tax for products weighing less than 1 or 1.2 ounces. A minority of the bills included this measure (11/52); among them, 63.6 per cent were approved in state legislatures. Similarly, most of the bills proposing either a cigarette tax increase (83.3 per cent) or a nontobacco revenue measure (84.6 per cent) became law. Notably, neither was included in tax bills rejected by Maine and Illinois in 2001. The tax change was later approved in the two states with the addition of a cigarette tax increase in Illinois and a non-tobacco revenue measure in both Illinois and Maine. Content analysis of legislative debates Among the debate participants (n = 89), 33.7 per cent were state legislatures, 20.3 per cent represented snuff manufacturers, 21.3 per cent represented public health/healthcare organizations, and the remaining 24.7 per cent represented other organizations (for example, tobacco
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
341
Timberlake et al
Table 1: Legislation designating a change in taxation of moist snuff (January 2000–June 2013) Content
All tax bills proposed Change to weight-based tax Change to price-based tax Available transcript data Additional measuresc Minimum snuff tax Cigarette tax increase Non-tobacco rev. measuree
Bills proposing tax change N
Pass
No pass
52 46 6 17
22 21 1 10
30 25 5 7
11 12 13
7 10 11
4 2 2
Description/tax range
bills from 37 state legislaturesa $.095/1.5 ounce – $2.526/1.2 ounce 5% retail price – 100% manuf. list price bills from 15 state legislaturesb $.60 (75 per cent) expressed their views in state legislatures that did not approve the change to weight-based taxation. They often expressed concern that snuff manufacturers may be manipulating weight to reduce excise taxes. A representative from the American Lung Association of Maine had the foresight in 2001 to oppose weight-based tax legislation long before the marketing of low-weight snuff (that is, snus) began. The representative later supported the bill that had been amended with a $1.53 minimum tax. Concern over manipulation was also evident at public hearings in two states, Nevada and Alaska, neither of which approved the change to weight-based taxation. In Nevada, representatives from local health departments (including Washoe County Health Department) pleaded with legislators to vote against the weight-based tax bill because of the
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
345
Timberlake et al
trend in declining product weights. Without a minimum tax, such products would thrive under a weight-based tax policy. The public health representatives did not, however, mention the potential impact of the tax legislation on youth tobacco use given the growing preference for discount brands.
Discussion Confusion over whether legislation was intended for tax equity, revenue generation, or prevention of youth tobacco use was a predominant theme voiced by state legislators. How was the problem defined in the tax debate? In the political science literature,17,18 problem definition is considered a process involving the participation of political actors. Despite their frustrations over the conflated issues, the state legislators were engaged in defining the problem. In contrast, some legislators (including those in Delaware) simply voted on weight-based tax legislation without discussing the merits and pitfalls of the tax change. Other legislators proposed weight-based taxation in much larger budget bills, possibly diverting attention from the debate over how snuff should be taxed. Concern over youth tobacco use was more evident than we originally anticipated. This may be due to the publicity over the recent marketing of novel smokeless tobacco.19 Most public health representatives testified before state legislatures that did not approve the change to weight-based taxation. Does testimony by public health advocates yield outcomes favorable to their cause? Research on workplace smoking legislation indicates that greater participation by non-legislators,20 and more scientific testimony,21 are associated with the passage of comprehensive smoking restrictions. In the case of weight-based taxation of snuff, the issue is more complicated. Although leading tobacco-control advocates opposed the tax change (for example, Campaign for TobaccoFree Kids), others supported the legislation because of its minimum snuff tax (for example, Oregon) or allocation of tax revenue for healthcare (for example, Texas). The former highlights public health advocates’ concerns that snuff manufacturers may be lowering product weight in order to lower tax, thus, creating a purchase incentive for youth. Others might consider the lower tax on novel SLT products (for example, snus), that are both low in weight and low in nitrosamine concentration, an incentive for purchasing a less harmful product. Surprisingly, we did not encounter extensive debate over the tax change and its implications for
346
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
Tax legislation on snuff
harm reduction. As noted by the World Health Organization (http:// whqlibdoc.who.int/publications/2010/9789241563994_eng.pdf), promotion of a differential tax (by weight) is likely to be motivated by business interests rather than harm reduction. Thus, the WHO does not endorse differential taxation as an incentive for smokers to use a less harmful product. Unlike discussions over product weights, public health advocates seldom discussed the growing market share of discount snuff relative to premium snuff. Discount snuff, which contains high levels of free nicotine, was increasingly preferred over time by adolescents who participated in the 2002-2009 National Surveys on Drug Use and Health.7 If public health advocates continue to be reticent on the issue, then tobacco industry lobbyists will dominate the tax debate with discussion of revenue implications from the changing market share of snuff. In their testimonies, tobacco lobbyists discussed tax revenue in great detail without any mention of the effects of market trends on the prevalence of youth tobacco use. The recent introduction of legislation proposing a change to ad valorem taxation may signal a new trend among states dissatisfied with weight-based taxation. Transcript data suggest that tax revenue from snuff sales declined from 2006 to 2010 by at least 70 per cent in Connecticut. The assertion that weight-based taxation has eroded tax revenue was challenged by a USSTC representative who testified that Connecticut would have also lost revenue from price reductions under ad valorem taxation. The question of which taxation method will yield greater state revenue depends largely on the trend in product pricing. Dating back to June 2007, UBS Investment Research predicted that the Conwood Company would market its products more like premium brands in terms of price and innovation.22 The prediction of a comeback of premium brands may be coming to fruition. Delnevo et al10 observed that the average unit price of a can of Grizzly increased from approximately $2 to $3 from 2005 to 2010.10 USSTC also cut the price of its leading premium brands in 2009, and recently marketed a discounted version of Skoal called Skoal Xtra. As the distinction between premium and discount brands becomes less apparent, the debate over what constitutes fair taxation will become less relevant. Taxation of smokeless tobacco is becoming highly relevant in highincome countries where smoke-free policies and health concerns about smoking are increasing. But the issue is also relevant in low-income countries, such as those in South and Southeast Asia where SLT use
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
347
Timberlake et al
(for example, betel quid) and oral cancer commonly co-occur.23,24 Uniform taxes on SLT are needed in these regions because traditional hand-made products are now being manufactured.23 Today non-cigarette tobacco products in many countries are taxed less than cigarettes to reduce the economic burden on the poor who use them. Yet there is a high burden of tobacco-related disease among low-income populations. In addition to increasing taxes on SLT products, we believe that policy makers abroad must address how the products should be taxed. We know that ad valorem taxation has been shown to foster brand-switching to reduce taxes, as evidenced by Chinese smokers who have switched from premium to discount brands.25 A similar scenario was observed over the past decade in young snuff users in the United States.7 As snuff manufacturers are manipulating their products by either price or weight, depending on existing tax laws, it is important for policy makers to be knowledgeable about the pros and cons of the different means of taxing snuff. Limitations Our analysis of transcript data from 17 bills revealed a multitude of arguments revolving around public health, fair taxation, and tax revenue. The findings, however, may not be representative of all state legislatures because of the idiosyncrasies in states’ availing of audio files to the public. Thus, we may have overestimated the effect of public health testimony on the rejection of weight-based tax legislation. Similarly, it was difficult to analyze state-level variation in the political and economic factors that influence tobacco control policy. Better sampling of states and additional measures (for example, presence of tobacco lobbyists) would have been required for assessing state-level effects. Despite limitations, our study revealed important lessons for lawmakers in the United States and abroad who are debating a change in the taxation of smokeless tobacco. The lawmakers need to be better informed of the changing tobacco markets and their potential impact on tax revenue and youth tobacco use.
Acknowledgements We thank Pete Quist at the National Institute on Money in State Politics for providing data on lobbyists, and Ann Boonn at the Campaign for Tobacco-Free Kids for providing data on state tobacco tax policies.
348
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
Tax legislation on snuff
About the Authors David S. Timberlake, PhD, is an associate professor in the Program in Public Health at the University of California, Irvine. Mojgan Sami, PhD, researches the nexus between urban planning and public health at the School of Social Ecology, University of California, Irvine. Sonam Patel, BS, is an MPH candidate at Emory University, Atlanta, Georgia. Shamili Thiagarajan, BS, is an MPH candidate at California State University, San Bernardino. Ramin Badiyan is an undergraduate student attending University of California, Irvine. Shay Willard, BA, is a graduate student attending University of Southern California.
References 1. Alpert, H.R., Koh, H. and Connolly, G.N. (2008) Free nicotine content and strategic marketing of moist snuff tobacco products in the United States: 2000–2006. Tobacco Control 17(5): 332–338. 2. Curry, L.E., Pederson, L.L. and Stryker, J.E. (2011) The changing marketing of smokeless tobacco in magazine advertisements. Nicotine & Tobacco Research 13(7): 540–547. 3. Timberlake, D.S., Pechmann, C., Tran, S.Y. and Au, V. (2011) A content analysis of Camel Snus advertisements in print media. Nicotine & Tobacco Research 13(6): 431–439. 4. Hatsukami, D.K., Ebbert, J.O., Feuer, R.M., Stepanov, I. and Hecht, S.S. (2007) Changing smokeless tobacco products new tobacco-delivery systems. American Journal of Preventive Medicine 33(6 Suppl): S368–S378. 5. Mejia, A.B. and Ling, P.M. (2010) Tobacco industry consumer research on smokeless tobacco users and product development. American Journal of Public Health 100(1): 78–87. 6. Delnevo, C., Lewis, M.J. and Foulds, J. (2007) Taxing moist snuff by weight ain’t worth spit. Tobacco Control 16(1): 69. 7. Timberlake, D.S. and Pechmann, C. (2013) Trends in the use and advertising of discount versus premium snuff. Nicotine & Tobacco Research 15(2): 474–481. 8. McNulty, M.S. (2007) Wyoming moist snuff tobacco taxation policy. Laramie, WY: Wyoming Survey & Analysis Center, University of Wyoming, Contract No.: CHES-702. 9. Alpert, H.R., Koh, H.K. and Connolly, G.N. (2008) After the master settlement agreement: Targeting and exposure of youth to magazine tobacco advertising. Health Affairs 27(6): w503–w512.
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
349
Timberlake et al
10. Delnevo, C.D., Wackowski, O.A., Giovenco, D.P., Manderski, M.T., Hrywna, M. and Ling, P.M. (2012) Examining market trends in the United States smokeless tobacco use: 2005– 2011. Tobacco Control 23(2): 107–112. 11. Tauras, J., Powell, L., Chaloupka, F. and Ross, H. (2007) The demand for smokeless tobacco among male high school students: The impact of taxes, prices and policies. Applied Economics 39: 31–41. 12. Ohsfeldt, R.L. and Boyle, R.G. (1994) Tobacco excise taxes and rates of smokeless tobacco use in the US: An exploratory ecological analysis. Tobacco Control 3: 316–323. 13. Ohsfeldt, R.L., Boyle, R.G. and Capilouto, E. (1997) Effects of tobacco excise taxes on the use of smokeless tobacco products in the USA. Health Economics 6(5): 525–531. 14. Levy, D.T. et al (2004) The relative risks of a low-nitrosamine smokeless tobacco product compared with smoking cigarettes: estimates of a panel of experts. Cancer Epidemiology, Biomarkers and Prevention 13(12): 2035–2042. 15. Rogers, J.D., Biener, L. and Clark, P.I. (2010) Test marketing of new smokeless tobacco products in four U.S. cities. Nicotine & Tobacco Research 12(1): 69–72. 16. Corbin, J.M. and Straus, A.L. (2008) Basics of Qualitative Research: Techniques and Procedures for Developing Grounded Theory, 3rd edn. Los Angeles, CA: Sage Publications. 17. Dery, D. (2000) Agenda setting and problem definition. Policy Studies 21(1): 37–47. 18. Stone, D. (1989) Causal stories and the formation of policy agendas. Political Science Quarterly 104(2): 281–300. 19. Wackowski, O.A., Lewis, M.J., Delnevo, C.D. and Ling, P.M. (2013) A content analysis of smokeless tobacco coverage in u.s. newspapers and news wires. Nicotine & Tobacco Research 15(7): 1289–1296. 20. Apollonio, D.E., Lopipero, P. and Bero, L.A. (2007) Participation and argument in legislative debate on statewide smoking restrictions. Health Research Policy and Systems 5: 12. 21. Apollonio, D.E. and Bero, L.A. (2009) Evidence and argument in policymaking: Development of workplace smoking legislation. BMC Public Health 9: 189. 22. Bush, J. (2007) Up to snuff: Price-value smokeless tobacco paves the way for deep-discount brands. CSP October: 149–156. 23. Kyaing, N.N., Islam, M.A., Sinha, D.N. and Rinchen, S. (2011) Social, economic and legal dimensions of tobacco and its control in South-East Asia region. Indian Journal of Public Health 55(3): 161–168. 24. Somatunga, L.C. et al (2012) Smokeless tobacco use in Sri Lanka. Indian Journal of Cancer 49(4): 357–363. 25. White, J.S., Li, J., Hu, T.W., Fong, G.T. and Jiang, Y. (2013) The effect of cigarette prices on brand-switching in China: A longitudinal analysis of data from the ITC China survey. Tobacco Control 23(Suppl 1): i54–i60.
350
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
Copyright of Journal of Public Health Policy is the property of Palgrave Macmillan Ltd. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.
The debate over weight- versus price-based taxation of snuff in the United States’ state legislatures David S. Timberlakea,*, Mojgan Samia, Sonam Patelb, Shamili Thiagarajanc, Ramin Badiyana, and Shay Willardd a University of California, Irvine, Anteater Instruction & Research Building, Room 2044, Irvine, California 92617, USA. E-mail: [email protected] b c
Emory University, Atlanta, Georgia, USA.
California State University, San Bernardino, USA.
d
University of Southern California, Los Angeles, California, USA.
*Corresponding author.
Abstract
Discount snuff, known for its cheap price, high nicotine content, and popularity among youth, has increased substantially in market share in the United States. As a likely result, the leading manufacturer of premium snuff has supported legislation changing the basis for taxing snuff from price to weight. To determine which public health issues arose in legislative debates, we transcribed 17 of 52 bills from US state legislatures and coded for arguments broadly categorized into public health, fair taxation, tax revenue, tax efficiency, and anti-competitiveness. State legislators expressed frustration that equitable taxation, revenue generation, and prevention of youth tobacco use were frequently conflated in the debates. Public health advocates expressed concerns over youths’ incentives to purchase low-weight snuff, but seldom discussed youths’ growing preference for discount snuff. The evolving market of moist snuff is a critical consideration for US state legislators as well as policy makers from other countries who may evaluate taxation methods for alternate tobacco products. Journal of Public Health Policy (2014) 35, 337–350. doi:10.1057/jphp.2014.10; published online 1 May 2014 Keywords: snuff; tobacco control; legislation; ad valorem; excise taxes
Introduction The smokeless tobacco industry in the United States has undergone major changes in the past decade in the way that it markets and
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350 www.palgrave-journals.com/jphp/
Timberlake et al
manufactures moist snuff – dipping tobacco that is finely ground. These changes and their implications have been well documented in the academic literature.1–5 In contrast, the trend in changing the taxation of snuff across US state legislatures has received little attention by academics. Currently, many states are debating the shift from a percentage of product price (ad valorem or ‘price-based’) to product weight ($/ounce; ‘weight-based’). Delnevo et al6 argued that enactment of weight-based tax legislation in New Jersey would increase youths’ use of snuff and decrease state revenues relative to ad valorem taxation.6 These arguments in opposition to the tax change are also voiced by leading public health organizations, such as the Campaign for TobaccoFree Kids (http://www.docstoc.com/docs/22560499/Best-Way-to-TaxSmokeless-Tobacco). They argue that the lower taxed low-weight snuff (for example snus) and the premium brands, whose gross price would be more comparable with the discount brands under the weight-based tax policy, are attractive to price-sensitive youths. Conversely, it can be argued that weight-based taxation may contribute to a decline in youths’ use of snuff because higher taxes may stem the rising popularity of the discount brands.7 Although passage of the tax legislation is anticipated to yield short-term revenue gains for states, it may yield long-term revenue losses due to the inability to account for inflation.8 The United States Smokeless Tobacco Company (USSTC) is the likely driving force behind the trend in states’ passage of the tax legislation because its premium brands would be taxed the same as the discount brands, both of which are typically sold as 1.2 ounces. In the year 2000, the USSTC lost a US$1 billion antitrust settlement against its leading competitor, the Conwood Company, which may have been the impetus for Conwood’s advertising investment in its discount brand Grizzly.9 As a likely result, Grizzly ascended from being the third most popular snuff brand in 2005 to the most popular brand in 2009.7,10 This trend concerns public health professionals because the tobacco is inexpensive, popular among youth, and has a high content of free nicotine.7 Thus, adolescents who prefer this brand are at risk of becoming dependent on nicotine. The few published studies on taxation of smokeless tobacco have estimated price elasticity of demand,11–13 the change in SLT use in response to a tax increase. These studies have reported a negative elasticity of demand, indicating that SLT use decreases with an increase in SLT taxes. Estimates of elasticity across products (cross-tax elasticity) indicate that
338
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
Tax legislation on snuff
SLT use increases with an increase in cigarette taxes,12,13 suggesting that the two tobacco products are economic substitutes. This substitution may also serve as a form of harm reduction for smokers who are susceptible to a host of respiratory illnesses. Proponents of harm reduction are likely to argue in favor of weight-based taxation as an incentive for smokers to switch to SLT (snus) that is low in weight, and hence low in price, in addition to being low in the cancer-causing nitrosamines.14 None of the cited economic studies examined the debate over how smokeless tobacco should be taxed (price versus weight). The World Health Organization (WHO) has emphasized the need for greater attention to the issue (http://whqlibdoc.who.int/publications/ 2010/9789241563994_eng.pdf), particularly in light of the marketing of the novel SLT products.15 Our study focuses on US state legislatures and the recent trend to legislate weight-based taxation of snuff. The study’s objective was to assess content of the arguments about the likely impact of the tax change on youth tobacco use, as reflected by changes in the gross price of lowweight snuff, premium snuff, and discount snuff. In examining this issue, we analyzed debates at public hearings and floor debates in US state legislatures from the period January 2000 through June 2013.
Methods Data source We used five sources of data – the State Cancer Legislative Database Program (http://www.scld-nci.net/mtcindex.cfm), newspaper articles, websites of 50 state legislatures, state librarians, and the Campaign for Tobacco-Free Kids in identifying 52 tax bills proposed between January 2000 and June 2013. Among them, 21 bills passed, 25 bills did not pass or died in committee, and six bills proposed a change in snuff taxation from weight to price (one of which passed). The 52 bills were filed in 25 state legislatures where a single bill was proposed, and 12 state legislatures where two or more bills were proposed in separate years. We did not include bills proposing only a change in the level of taxation, either price or weight. We obtained audio files and written testimony of the legislative debates for 17 of the 52 identified bills. They originated from floor debates and public hearings, the latter comprising most of the material analyzed. The 17 bills had been proposed in 15 state legislatures
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
339
Timberlake et al
(Wyoming, Nebraska, Utah, Virginia, Tennessee, Oregon, Delaware, Hawaii, Nevada, Connecticut, Alaska, Washington, Texas, Maine, North Dakota). Audio files from the 22 other states that had proposed tax legislation were either unavailable or not directly relevant to the debate over snuff taxes (for example, biennial budget bills). We transcribed the audio files verbatim into documents, approximately 72 330 words in total. The transcripts ranged in word count from 183 (Virginia floor debates) to 16 806 (Hawaii public testimonials). From the 17 transcripts, we identified 172 individuals who participated in either a floor debate or public hearing (including written testimonials). Among them, 89 made at least one of the arguments described below, yielding a total of 167 coded arguments. Content analysis Prior to the review of transcript data, we developed codes for arguments supporting and opposing the legislation as identified in newspapers, organizational statements, position papers, and letters6 (see Table 2 for examples of arguments). Subsequently, we added codes developed from transcript data using an inductive approach.16 A total of three arguments, pertaining to a likely change in snuff use, were coded as public health and corresponded to an increase in use of low-weight snuff (as a result of a tax decrease), an increase in use of premium snuff (as a result of equitable tax with discount snuff), and a decrease in use of discount snuff (as a result of a tax increase). We categorized arguments identified as being economic in origin into the following four subgroups: (1) fair taxation that included equity for tobacco products/companies, equity between state and federal government, fairness for the poor who are burdened by high taxes, and the harm or negative externality to society; (2) tax revenue that included gains, losses, and a neutral effect of the tax change on state budgets; (3) tax efficiency that pertained to the convenience/manageability of the tax systems; and (4) anti-competitiveness that pertained to the tax’s likely impact on the smaller market for discount snuff. In addition, we observed less frequent arguments such as the growth of ‘black markets’ and allocation of tax revenue for healthcare/tobacco-control efforts (not reported in the results section). Members of our research team independently coded the transcript data for the states to which they were assigned. The research team then reviewed the coding as a group and resolved discrepancies by vote.
340
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
Tax legislation on snuff
The code for any given argument was counted only once for individuals who repeatedly made the same argument. Upon concluding the analysis of transcript data, we examined the legislation and coded for provisions that might affect the legislation’s passage, including a minimum tax on snuff, an increase in cigarette tax, and non-tobacco revenue measures.
Results Trend in weight-based tax legislation Only two states, Alabama and Arizona, had taxed moist snuff by weight prior to the year 2000. By the end of 2001, eight states had considered changing the basis for taxing snuff from price to weight; among them, North Dakota and Connecticut approved the tax change. A more recent trend in state legislatures’ passage of weight-based taxation was observed from 2006 to 2012. During this period, 35 bills proposing weight-based taxation were introduced in state legislatures, 17 of which passed. Other states have attempted unsuccessfully to revert back to ad valorem taxation (Connecticut, Virginia, Kentucky, North Dakota); Wisconsin’s legislature repealed weight-based taxation in 2009, after having approved it in 2007. Examination of legislation proposed from January 2000 through June 2013 revealed provisions that might affect passage (see Table 1). One such provision was a minimum tax for products weighing less than 1 or 1.2 ounces. A minority of the bills included this measure (11/52); among them, 63.6 per cent were approved in state legislatures. Similarly, most of the bills proposing either a cigarette tax increase (83.3 per cent) or a nontobacco revenue measure (84.6 per cent) became law. Notably, neither was included in tax bills rejected by Maine and Illinois in 2001. The tax change was later approved in the two states with the addition of a cigarette tax increase in Illinois and a non-tobacco revenue measure in both Illinois and Maine. Content analysis of legislative debates Among the debate participants (n = 89), 33.7 per cent were state legislatures, 20.3 per cent represented snuff manufacturers, 21.3 per cent represented public health/healthcare organizations, and the remaining 24.7 per cent represented other organizations (for example, tobacco
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
341
Timberlake et al
Table 1: Legislation designating a change in taxation of moist snuff (January 2000–June 2013) Content
All tax bills proposed Change to weight-based tax Change to price-based tax Available transcript data Additional measuresc Minimum snuff tax Cigarette tax increase Non-tobacco rev. measuree
Bills proposing tax change N
Pass
No pass
52 46 6 17
22 21 1 10
30 25 5 7
11 12 13
7 10 11
4 2 2
Description/tax range
bills from 37 state legislaturesa $.095/1.5 ounce – $2.526/1.2 ounce 5% retail price – 100% manuf. list price bills from 15 state legislaturesb $.60 (75 per cent) expressed their views in state legislatures that did not approve the change to weight-based taxation. They often expressed concern that snuff manufacturers may be manipulating weight to reduce excise taxes. A representative from the American Lung Association of Maine had the foresight in 2001 to oppose weight-based tax legislation long before the marketing of low-weight snuff (that is, snus) began. The representative later supported the bill that had been amended with a $1.53 minimum tax. Concern over manipulation was also evident at public hearings in two states, Nevada and Alaska, neither of which approved the change to weight-based taxation. In Nevada, representatives from local health departments (including Washoe County Health Department) pleaded with legislators to vote against the weight-based tax bill because of the
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
345
Timberlake et al
trend in declining product weights. Without a minimum tax, such products would thrive under a weight-based tax policy. The public health representatives did not, however, mention the potential impact of the tax legislation on youth tobacco use given the growing preference for discount brands.
Discussion Confusion over whether legislation was intended for tax equity, revenue generation, or prevention of youth tobacco use was a predominant theme voiced by state legislators. How was the problem defined in the tax debate? In the political science literature,17,18 problem definition is considered a process involving the participation of political actors. Despite their frustrations over the conflated issues, the state legislators were engaged in defining the problem. In contrast, some legislators (including those in Delaware) simply voted on weight-based tax legislation without discussing the merits and pitfalls of the tax change. Other legislators proposed weight-based taxation in much larger budget bills, possibly diverting attention from the debate over how snuff should be taxed. Concern over youth tobacco use was more evident than we originally anticipated. This may be due to the publicity over the recent marketing of novel smokeless tobacco.19 Most public health representatives testified before state legislatures that did not approve the change to weight-based taxation. Does testimony by public health advocates yield outcomes favorable to their cause? Research on workplace smoking legislation indicates that greater participation by non-legislators,20 and more scientific testimony,21 are associated with the passage of comprehensive smoking restrictions. In the case of weight-based taxation of snuff, the issue is more complicated. Although leading tobacco-control advocates opposed the tax change (for example, Campaign for TobaccoFree Kids), others supported the legislation because of its minimum snuff tax (for example, Oregon) or allocation of tax revenue for healthcare (for example, Texas). The former highlights public health advocates’ concerns that snuff manufacturers may be lowering product weight in order to lower tax, thus, creating a purchase incentive for youth. Others might consider the lower tax on novel SLT products (for example, snus), that are both low in weight and low in nitrosamine concentration, an incentive for purchasing a less harmful product. Surprisingly, we did not encounter extensive debate over the tax change and its implications for
346
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
Tax legislation on snuff
harm reduction. As noted by the World Health Organization (http:// whqlibdoc.who.int/publications/2010/9789241563994_eng.pdf), promotion of a differential tax (by weight) is likely to be motivated by business interests rather than harm reduction. Thus, the WHO does not endorse differential taxation as an incentive for smokers to use a less harmful product. Unlike discussions over product weights, public health advocates seldom discussed the growing market share of discount snuff relative to premium snuff. Discount snuff, which contains high levels of free nicotine, was increasingly preferred over time by adolescents who participated in the 2002-2009 National Surveys on Drug Use and Health.7 If public health advocates continue to be reticent on the issue, then tobacco industry lobbyists will dominate the tax debate with discussion of revenue implications from the changing market share of snuff. In their testimonies, tobacco lobbyists discussed tax revenue in great detail without any mention of the effects of market trends on the prevalence of youth tobacco use. The recent introduction of legislation proposing a change to ad valorem taxation may signal a new trend among states dissatisfied with weight-based taxation. Transcript data suggest that tax revenue from snuff sales declined from 2006 to 2010 by at least 70 per cent in Connecticut. The assertion that weight-based taxation has eroded tax revenue was challenged by a USSTC representative who testified that Connecticut would have also lost revenue from price reductions under ad valorem taxation. The question of which taxation method will yield greater state revenue depends largely on the trend in product pricing. Dating back to June 2007, UBS Investment Research predicted that the Conwood Company would market its products more like premium brands in terms of price and innovation.22 The prediction of a comeback of premium brands may be coming to fruition. Delnevo et al10 observed that the average unit price of a can of Grizzly increased from approximately $2 to $3 from 2005 to 2010.10 USSTC also cut the price of its leading premium brands in 2009, and recently marketed a discounted version of Skoal called Skoal Xtra. As the distinction between premium and discount brands becomes less apparent, the debate over what constitutes fair taxation will become less relevant. Taxation of smokeless tobacco is becoming highly relevant in highincome countries where smoke-free policies and health concerns about smoking are increasing. But the issue is also relevant in low-income countries, such as those in South and Southeast Asia where SLT use
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
347
Timberlake et al
(for example, betel quid) and oral cancer commonly co-occur.23,24 Uniform taxes on SLT are needed in these regions because traditional hand-made products are now being manufactured.23 Today non-cigarette tobacco products in many countries are taxed less than cigarettes to reduce the economic burden on the poor who use them. Yet there is a high burden of tobacco-related disease among low-income populations. In addition to increasing taxes on SLT products, we believe that policy makers abroad must address how the products should be taxed. We know that ad valorem taxation has been shown to foster brand-switching to reduce taxes, as evidenced by Chinese smokers who have switched from premium to discount brands.25 A similar scenario was observed over the past decade in young snuff users in the United States.7 As snuff manufacturers are manipulating their products by either price or weight, depending on existing tax laws, it is important for policy makers to be knowledgeable about the pros and cons of the different means of taxing snuff. Limitations Our analysis of transcript data from 17 bills revealed a multitude of arguments revolving around public health, fair taxation, and tax revenue. The findings, however, may not be representative of all state legislatures because of the idiosyncrasies in states’ availing of audio files to the public. Thus, we may have overestimated the effect of public health testimony on the rejection of weight-based tax legislation. Similarly, it was difficult to analyze state-level variation in the political and economic factors that influence tobacco control policy. Better sampling of states and additional measures (for example, presence of tobacco lobbyists) would have been required for assessing state-level effects. Despite limitations, our study revealed important lessons for lawmakers in the United States and abroad who are debating a change in the taxation of smokeless tobacco. The lawmakers need to be better informed of the changing tobacco markets and their potential impact on tax revenue and youth tobacco use.
Acknowledgements We thank Pete Quist at the National Institute on Money in State Politics for providing data on lobbyists, and Ann Boonn at the Campaign for Tobacco-Free Kids for providing data on state tobacco tax policies.
348
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
Tax legislation on snuff
About the Authors David S. Timberlake, PhD, is an associate professor in the Program in Public Health at the University of California, Irvine. Mojgan Sami, PhD, researches the nexus between urban planning and public health at the School of Social Ecology, University of California, Irvine. Sonam Patel, BS, is an MPH candidate at Emory University, Atlanta, Georgia. Shamili Thiagarajan, BS, is an MPH candidate at California State University, San Bernardino. Ramin Badiyan is an undergraduate student attending University of California, Irvine. Shay Willard, BA, is a graduate student attending University of Southern California.
References 1. Alpert, H.R., Koh, H. and Connolly, G.N. (2008) Free nicotine content and strategic marketing of moist snuff tobacco products in the United States: 2000–2006. Tobacco Control 17(5): 332–338. 2. Curry, L.E., Pederson, L.L. and Stryker, J.E. (2011) The changing marketing of smokeless tobacco in magazine advertisements. Nicotine & Tobacco Research 13(7): 540–547. 3. Timberlake, D.S., Pechmann, C., Tran, S.Y. and Au, V. (2011) A content analysis of Camel Snus advertisements in print media. Nicotine & Tobacco Research 13(6): 431–439. 4. Hatsukami, D.K., Ebbert, J.O., Feuer, R.M., Stepanov, I. and Hecht, S.S. (2007) Changing smokeless tobacco products new tobacco-delivery systems. American Journal of Preventive Medicine 33(6 Suppl): S368–S378. 5. Mejia, A.B. and Ling, P.M. (2010) Tobacco industry consumer research on smokeless tobacco users and product development. American Journal of Public Health 100(1): 78–87. 6. Delnevo, C., Lewis, M.J. and Foulds, J. (2007) Taxing moist snuff by weight ain’t worth spit. Tobacco Control 16(1): 69. 7. Timberlake, D.S. and Pechmann, C. (2013) Trends in the use and advertising of discount versus premium snuff. Nicotine & Tobacco Research 15(2): 474–481. 8. McNulty, M.S. (2007) Wyoming moist snuff tobacco taxation policy. Laramie, WY: Wyoming Survey & Analysis Center, University of Wyoming, Contract No.: CHES-702. 9. Alpert, H.R., Koh, H.K. and Connolly, G.N. (2008) After the master settlement agreement: Targeting and exposure of youth to magazine tobacco advertising. Health Affairs 27(6): w503–w512.
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
349
Timberlake et al
10. Delnevo, C.D., Wackowski, O.A., Giovenco, D.P., Manderski, M.T., Hrywna, M. and Ling, P.M. (2012) Examining market trends in the United States smokeless tobacco use: 2005– 2011. Tobacco Control 23(2): 107–112. 11. Tauras, J., Powell, L., Chaloupka, F. and Ross, H. (2007) The demand for smokeless tobacco among male high school students: The impact of taxes, prices and policies. Applied Economics 39: 31–41. 12. Ohsfeldt, R.L. and Boyle, R.G. (1994) Tobacco excise taxes and rates of smokeless tobacco use in the US: An exploratory ecological analysis. Tobacco Control 3: 316–323. 13. Ohsfeldt, R.L., Boyle, R.G. and Capilouto, E. (1997) Effects of tobacco excise taxes on the use of smokeless tobacco products in the USA. Health Economics 6(5): 525–531. 14. Levy, D.T. et al (2004) The relative risks of a low-nitrosamine smokeless tobacco product compared with smoking cigarettes: estimates of a panel of experts. Cancer Epidemiology, Biomarkers and Prevention 13(12): 2035–2042. 15. Rogers, J.D., Biener, L. and Clark, P.I. (2010) Test marketing of new smokeless tobacco products in four U.S. cities. Nicotine & Tobacco Research 12(1): 69–72. 16. Corbin, J.M. and Straus, A.L. (2008) Basics of Qualitative Research: Techniques and Procedures for Developing Grounded Theory, 3rd edn. Los Angeles, CA: Sage Publications. 17. Dery, D. (2000) Agenda setting and problem definition. Policy Studies 21(1): 37–47. 18. Stone, D. (1989) Causal stories and the formation of policy agendas. Political Science Quarterly 104(2): 281–300. 19. Wackowski, O.A., Lewis, M.J., Delnevo, C.D. and Ling, P.M. (2013) A content analysis of smokeless tobacco coverage in u.s. newspapers and news wires. Nicotine & Tobacco Research 15(7): 1289–1296. 20. Apollonio, D.E., Lopipero, P. and Bero, L.A. (2007) Participation and argument in legislative debate on statewide smoking restrictions. Health Research Policy and Systems 5: 12. 21. Apollonio, D.E. and Bero, L.A. (2009) Evidence and argument in policymaking: Development of workplace smoking legislation. BMC Public Health 9: 189. 22. Bush, J. (2007) Up to snuff: Price-value smokeless tobacco paves the way for deep-discount brands. CSP October: 149–156. 23. Kyaing, N.N., Islam, M.A., Sinha, D.N. and Rinchen, S. (2011) Social, economic and legal dimensions of tobacco and its control in South-East Asia region. Indian Journal of Public Health 55(3): 161–168. 24. Somatunga, L.C. et al (2012) Smokeless tobacco use in Sri Lanka. Indian Journal of Cancer 49(4): 357–363. 25. White, J.S., Li, J., Hu, T.W., Fong, G.T. and Jiang, Y. (2013) The effect of cigarette prices on brand-switching in China: A longitudinal analysis of data from the ITC China survey. Tobacco Control 23(Suppl 1): i54–i60.
350
© 2014 Macmillan Publishers Ltd. 0197-5897 Journal of Public Health Policy Vol. 35, 3, 337–350
Copyright of Journal of Public Health Policy is the property of Palgrave Macmillan Ltd. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.
