After 2018 tax hike, cigarette sales in Ky. dropped 10%, more than the national decline; bill would tax e-cigs, sales of which are rising

The tax hike made cigarettes noticeably more expensive in Kentucky than in Indiana and Tennessee, and narrowed price differentials with Ohio and West Virginia; that may have reduced Kentucky sales.
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By Melissa Patrick
Kentucky Health News

The year after Kentucky increased its cigarette tax by 50 cents, to $1.10 per pack, 36 million fewer packs were sold in the state. That was a decrease of about 10 percent, more than the national decline of 6.1%.

According to an Aug. 9 report from the state budget director, in fiscal year 2019, which ended June 30, 321.1 million packs of cigarettes were sold in Kentucky, down from 357.1 million in fiscal 2018.

The report notes that from calendar year 2016 to 2017, cigarette sales in the state dropped 3.5%.

That’s a “big deal.” said Ben Chandler, president and CEO of the Foundation for a Healthy Kentucky, which lobbied for the tax increase and is now pushing for a tax on electronic cigarettes.

“It is pretty clear to us that a lot of these packs of cigarettes were not purchased as a result of the rise of the cigarette tax,” Chandler said. “You can never completely prove it, but the fact that we had such a decrease . . . the size of the decrease was unusual right after the cigarette tax went into effect.”

The last Kentucky Health Issues Poll, taken Aug. 24-Oct. 21, 2018, found that half of Kentucky smokers said they smoked less, or considered or tried to quit smoking, following the tax hike; 39% of Kentucky smokers said they reduced their smoking, 33% considered quitting, and 26 % tried to quit.

Chandler called those results “pretty good data that would suggest that the price increase does affect people’s behavior.”

Some critics of cigarette-tax increases argue that governments shouldn’t rely on revenue sources that are declining. Chandler said that any loss in revenue from fewer tobacco sales will result in a significant long-term savings to the state’s health budget. He said the state Medicaid program pays $600 million a year in smoking-related costs.

Chandler said he thought a proposed tax on electronic cigarettes would have a similar effect on teenagers’ use of the products.

“I think particularly among young people, the tax will have a profound effect,” he said. “One thing this information shows you is that when you raise the price, consumption does go down. And we believe that the people who are more likely to be susceptible to a price increase are kids because they don’t have a whole lot of disposable income.

Kentucky lawmakers have pre-filed legislation (Bill Request 32) for the 2020 legislative session to tax electronic cigarettes like other tobacco products, as a way to curb surging youth use of the devices.

Map by Stateline, a service of the Pew Charitable Trusts, shows in green states that tax e- cigarettes. (Click on map for a larger version)

Use of e-cigarettes nearly doubled among Kentucky youth from 2016 to 2018, with more than one in four high-school seniors reporting last year they they had used e-cigs, and experts say that is part of a national epidemic.

At a July news conference, state Rep. Jerry Miller, a Louisville Republican and House State Government Committee chair, announced a bipartisan proposal to levy an excise tax of 27.5% on electronic cigarettes.

E-cigarettes are the only tobacco product not subject to a state excise tax in Kentucky. The bill would also raise the excise tax on tobacco products such as snuff and chewing tobacco to equal the tax on cigarettes.

In its 2014 report, “The Health Consequences of Smoking: 50 Years of Progress,” the surgeon general said increasing prices is “one of the most powerful tobacco control interventions” because price hikes are proven to reduce smoking, especially among teenagers.

An e-cigarette tax was in the 2018 bill that raised the cigarette tax, but was removed in the Senate, just before final passage and after lobbying by Altria Group, the largest tobacco company and 35% owner of Juul Labs, the largest e-cig company. Altria outspent all other lobbying interests in the 2018 legislative session, spending about $380,000 to influence legislators.

Between Jan. 1 and April 30 of this year, Juul Labs has spent around $43,000 for lobbying the General Assembly, according to a report from the Kentucky Legislative Ethics Commission.

Stateline reports that 17 states and the District of Columbia have specific taxes on e-cigarette products, with half of those taxes implemented in 2019, according to the Public Health Law Center at the Mitchell Hamline School of Law in St. Paul, Minnesota.

Cigarette sales decrease as Juul sales increase

A graph on the Juul Labs website shows that since the end of 2017 the quarterly decline in cigarette sales has steadily accelerated, going from 3.5% to 7.2%, while Juul sales surged, with the quarterly increases rising from 1% to 6.3%. The Juul analysis notes that a 1% annual decline in cigarette sales represents about 125 million fewer packs of combustible cigarettes.

“These changes in the U.S. tobacco market are a testament to the success of Juul products in switching adult smokers off combustible cigarettes,” Juul CEO Kevin Burns said in the report.

Chandler pushed back on that assertion, saying that research does not show that adults who switch to an e-cigarette product are more likely to quit — and that it also shows that those who use e-cigarettes often use both products. He added that the U.S. Food and Drug Administration has not approved e-cigarettes as a smoking cessation device.

He said research shows that teenagers who would never have smoked a traditional cigarette are using e-cigarettes at alarming rates. Other studies show that those who use e-cigarettes end up smoking traditional cigarettes at about the same rate as teens who first start with traditional smokes.

“I don’t buy into the notion that Juul suggests, that the e-cigarettes have been central in cutting down smoking,” Chandler said. “What I see is young people taking up e-cigarettes who would have never smoked otherwise.”