Presentation on Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget
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Presentation on Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget

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Presentation by James Baumgardner, Ph.D., Deputy Assistant Director Health, Retirement, and Long-Term Analysis Division, CBO, to the 30th International Congress of Actuaries on April 4, 2014

Presentation by James Baumgardner, Ph.D., Deputy Assistant Director Health, Retirement, and Long-Term Analysis Division, CBO, to the 30th International Congress of Actuaries on April 4, 2014

This presentation provides information published in Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget (June 2012), www.cbo.gov/publication/43319

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    Presentation on Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget Presentation on Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget Presentation Transcript

    • Congressional Budget Office Presentation on Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget to the 30th International Congress of Actuaries April 4, 2014 This presentation provides information published in Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget (June 2012), www.cbo.gov/publication/43319. James Baumgardner, Ph.D. Deputy Assistant Director Health, Retirement, and Long-Term Analysis Division
    • C O N G R E S S I O N A L B U D G E T O F F I C E Goal of This Project Assess the effect on the federal budget of a policy to improve health through changes in behavior – Consider a 50-cent increase in the federal excise tax on cigarettes, indexed for inflation and growth in income – Focus on changes in outlays and revenues resulting from changes in health because of the policy – Estimate effects for the usual 10-year “budget window” and the longer term
    • C O N G R E S S I O N A L B U D G E T O F F I C E Caveats ■ Policymakers’ decisions depend on considerations other than the budget. ■ Other policies to improve health would be likely to have different effects on the budget.
    • C O N G R E S S I O N A L B U D G E T O F F I C E Federal Outlays, 2013 Social Security (OASDI) (23%) Net Medicare (14%) Medicaid (8%) Other Mandatory Spending (14%) Defense Discretionary Spending (18%) Nondefense Discretionary Spending (17%) Net Interest (6%)
    • C O N G R E S S I O N A L B U D G E T O F F I C E Spending and Revenues Projected in CBO’s Baseline (February 2014) and Extended Baseline (September 2013) (Percentage of gross domestic product) Social Security Major Health Care Programs Total Revenues Deficit Net Interest Other Noninterest Spending Total Outlays 17.7 17.5 18.4 19.7 - 0.4 - 3.0 - 4.0 - 6.42038 2024 2014 1974 18.1 20.5 22.4 26.2 2038 2024 2014 1974 3.7 4.9 5.6 6.2 1.0 4.8 6.1 8.0 12.0 9.4 7.4 7.1 1.4 1.3 3.3 4.9
    • C O N G R E S S I O N A L B U D G E T O F F I C E Federal Spending on Major Health Care Programs, by Category, Under CBO’s Extended Baseline (September 2013) (Percentage of gross domestic product)
    • C O N G R E S S I O N A L B U D G E T O F F I C E Percentage of U.S. Adults Who Smoke Cigarettes 1992 1999 2005 2011 2017 2023 2029 2035 0 5 10 15 20 25 30 Actual Projected
    • C O N G R E S S I O N A L B U D G E T O F F I C E General Analytic Approach Policy Intervention Reduction in Smoking Improvements in Health Utilization of Medical Care Federal Health Care Programs Changes in Mortality Labor Market Effects Federal Retirement Programs, Disability Insurance, and Revenues
    • C O N G R E S S I O N A L B U D G E T O F F I C E Cumulative Reduction in the Number of Smokers Because of the Illustrative Increase in the Cigarette Tax 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 -2,000,000 -1,800,000 -1,600,000 -1,400,000 -1,200,000 -1,000,000 -800,000 -600,000 -400,000 -200,000 0 All Adults 18 to 64 Years Old 65 or Older
    • C O N G R E S S I O N A L B U D G E T O F F I C E Annual Spending on Health Care for Smokers, Nonsmokers, and Nonsmokers Who Otherwise Resemble Smokers, by Age Group (2008 dollars) 18–24 25–44 45–64 65–74 75 or Older 0 2,000 4,000 6,000 8,000 10,000 12,000 Current or Former Smokers People Who Have Never Smoked People Who Have Never Smoked but Have the Other Characteristics of Smokers
    • C O N G R E S S I O N A L B U D G E T O F F I C E Probabilityof Dyingin the NextYear for Smokers,Nonsmokers,and NonsmokersWho OtherwiseResembleSmokers, byAgeGroup (Percent) 18–24 25–44 45–64 65–74 75 or Older 0 1 2 3 4 5 6 7 8 Current or Former Smokers People Who Have Never Smoked People Who Have Never Smoked but Have the Other Characteristics of Smokers
    • C O N G R E S S I O N A L B U D G E T O F F I C E Smoking and Earnings ■ Possible effects of reduced smoking – Reduced working-age mortality (yes) – Higher working-age labor force participation (yes) – Later retirement (yes) – Increased work hours when employed (no) – Reduced absenteeism (inferred from earnings) – Improved productivity (inferred from earnings) ■ CBO concluded that smoking reduces earnings by 4 percent to 7 percent, depending on people’s age
    • C O N G R E S S I O N A L B U D G E T O F F I C E CBO’s Simulation Model ■ Projects smoking rates under current law ■ Identifies people affected by the policy (smokers and would-be smokers) ■ Projects health care spending, longevity, and earnings – Under current law (taking into account that some people would quit even without the policy change) – With the illustrative tax increase
    • C O N G R E S S I O N A L B U D G E T O F F I C E Projecting Health Care Spending per Capita ■ Analysis focuses on people who, under current law, either smoke or will take up smoking—considered in two categories: – People who smoke until death, or – People who will quit regardless of whether there is a tax increase (spontaneous quitters) ■ Of those, it addresses the effects on spending for people who, because of the tax increase, would either stop or never start smoking: – For smokers who would stop, projected spending transitions from current-law spending to spending for people who’ve never smoked – For people who never smoke because of the policy, projected spending is the same as spending under current law for people who’ve never smoked ■ Longevity and earnings are projected in a similar way
    • C O N G R E S S I O N A L B U D G E T O F F I C E Rate at Which Former Smokers’ Longevity and Health Care Spending Approach Those of People Who Have Never Smoked (Percentage recovery) 0 6 12 18 24 30 36 42 48 54 60 66 72 0 10 20 30 40 50 60 70 80 90 100 Years After Smoking Cessation
    • C O N G R E S S I O N A L B U D G E T O F F I C E Population Increase Resulting from the Illustrative Increase in the Cigarette Tax (Number of additional people) 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 All Adults 18 to 64 Years Old 65 or Older
    • C O N G R E S S I O N A L B U D G E T O F F I C E Average Changes in Health Care Spending and Earnings for People Affected by the Illustrative Increase in the Cigarette Tax (Percent) 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 -12 -10 -8 -6 -4 -2 0 All Adults 18 to 64 Years Old 65 or Older 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 0 1 2 3 4 Change in Annual per Capita Spending on Health Care Change in Earnings 18 to 64 Years Old All Adults 65 or Older
    • C O N G R E S S I O N A L B U D G E T O F F I C E Effects of the Policy on the Budget ■ Outlays are reduced because of better health. ■ Outlays are increased because of greater longevity. ■ Revenues are increased because of better health. ■ Revenues are increased because of additional excise tax collections.
    • C O N G R E S S I O N A L B U D G E T O F F I C E Effects on Outlays of the Illustrative Increase in the Cigarette Tax (Percentage of gross domestic product) 2013 2019 2025 2031 2037 2043 2049 2055 2061 2067 2073 2079 2085 -0.015 -0.010 -0.005 0 0.005 0.010 0.015 0.020 0.025 Total Effects on Outlays Effects of Increased Longevity Effects of Lower per Capita Health Care Spending
    • C O N G R E S S I O N A L B U D G E T O F F I C E Effects on Outlays of the Illustrative Increase in the Cigarette Tax, by Program (Percentage of gross domestic product) 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 -0.0010 -0.0005 0 0.0005 0.0010 0.0015 0.0020 0.0025 Social Security Medicare Medicaid and Subsidies Through Health Insurance Exchanges Other 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 -0.0010 -0.0005 0 0.0005 0.0010 0.0015 0.0020 0.0025 Social Security Medicare Medicaid and Subsidies Through Health Insurance Exchanges Total Other
    • C O N G R E S S I O N A L B U D G E T O F F I C E Health-Related Effects on Revenues of the Illustrative Increase in the Cigarette Tax 2013 2019 2025 2031 2037 2043 2049 2055 2061 2067 2073 2079 2085 -0.002 0 0.002 0.004 0.006 0.008 0.010 0.012 Effects of Increased Longevity Effects of Lower Health Insurance Premiums and Related Factors Total Effects on Revenues from Improvements in Health Effects of Changes in Labor Earnings per Capita (Percentage of gross domestic product)
    • C O N G R E S S I O N A L B U D G E T O F F I C E Health-Related Effects on Revenues, Outlays, and the Deficit of the Illustrative Increase in the Cigarette Tax (Percentage of gross domestic product) 2013 2019 2025 2031 2037 2043 2049 2055 2061 2067 2073 2079 2085 -0.006 -0.004 -0.002 0 0.002 0.004 0.006 0.008 0.010 0.012 0.014 Total Effects on Revenues from Improvements in Health Total Effects on Outlays Net Effects on the Deficit from Improvements in Health
    • C O N G R E S S I O N A L B U D G E T O F F I C E Total Budgetary Effects of the Illustrative Increase in the Cigarette Tax (Percentage of gross domestic product) 2013 2019 2025 2031 2037 2043 2049 2055 2061 2067 2073 2079 2085 -0.03 -0.02 -0.01 0 0.01 0.02 0.03 Total Effects on Outlays Total Effects on Revenues Net Effects on the Deficit
    • C O N G R E S S I O N A L B U D G E T O F F I C E Conclusions ■ Changes in federal spending from improved health would be quite small relative to the size of the programs affected. ■ Federal spending would be reduced throughout the first decade but would increase in the second or third decade. ■ Improved health would cause increases in revenues on an ongoing basis.
    • C O N G R E S S I O N A L B U D G E T O F F I C E Conclusions (Continued) ■ The health effects as a whole would produce very small net declines in the deficit for roughly five decades; the declines would peak about 20 years into the policy. ■ The increased excise tax receipts from the policy would exceed the policy’s health-related effects on both revenues and outlays for at least 75 years, with an overall result of a net decrease in the deficit.